Good afternoon, everybody, and thank you for those of you that came. For those of you on the webcast, there are plenty of good seats still available. And there was a great hot buffet lunch. So you really missed out if you didn't track on down here, but we do appreciate those of you that came on down and we appreciate everybody on the webcast. So good afternoon and thank you for joining us for our 2018 Investor Day.
Before I get started, I just wanted to say how honored I am to be the CEO of American Express. Leading this great company and following Ken Chenault is a tremendous responsibility, and it's one that I accept with humility, determination and total commitment. Let me turn to what I hope to accomplish today. There are 3 major points that I hope you'll take away from our presentations. First, we have a differentiated business model and that positions us to win in the highly competitive payments industry.
2nd, there is a long runway for growth in the payments industry. And third, we'll build on our existing strengths by focusing our investments on 4 strategic priorities that extend across our businesses for growth. Here's our agenda for the afternoon. I'll give you a brief overview of where we are in our overall strategy for continuing our momentum. Then we'll hear more detail about the growth strategies we're pursuing in each of our 3 global businesses.
Doug Buckminster will cover Consumer, Paul Abbott will cover commercial, and Andre Williams will cover merchant and network services. Those of you who have followed us for a while know Doug and Anre, but you may not know Paul. Paul is our Chief Commercial Officer who is responsible for all marketing, sales and account management activities in our global commercial business. He's based in London and has been with American Express for 22 years and in commercial services for the past two and a half years. Prior to that, Paul had senior roles in our Global Network and Merchant businesses, so he has experience across several of our key businesses.
I've asked Paul to provide the commercial overview today as we are in the process of a search for the new Head of the business. After the business strategy presentations, Jeff will come up and give you a financial outlook and then we'll finish the afternoon with a Q and A. We'll be taking a short break between the commercial and merchant presentations to give you an opportunity to stretch your legs. Before I get into my presentation, I wanted to give you a little bit of background about me. For many, if not most of you, the only American Express CEO you've ever known is Ken Chenault.
I've been with American Express for most of my career, 32 years in fact, starting with the Travelers Chek Group in 1985. Over my career, I've had an opportunity to run 2 of the company's major business lines, the Merchant Business and Commercial Services. I also ran our corporate travel business and was responsible for the global business travel joint venture we created a few years ago. I have served as the company's Chief Information Officer and led our global shared services functions, which include customer servicing, credit administration, business services and technology. Over the past few years, I have been involved in the company's major realignments and restructuring activities.
I worked with Ken on overall company strategy as we navigated through a period of significant transformation. And since the announcement in October 2017 of Ken's retirement and my designation as CEO, through my assumption of CEO on February 1, I've worked closely with Ken and the Board to make sure a smooth and seamless leadership transition, and I focused on building our business momentum as we entered 2018. I also want to spend a minute talking about my direct report team. I think this is easily the best, most qualified leadership team in the industry. It's well balanced between those who are long tenured at American Express and those who are more recent members.
In fact, half of the team has spent the bulk of their professional careers at American Express, including Doug, Andre, Denise Pickett, Mike O'Neill and Elizabeth Rutledge and across many businesses. Over the past decade, we've also been fortunate to bring in some very talented people from outside the company who have a wide range of experiences, including Jeff, Lorraine Seager, Paul Fabara, Mark Gordon and Kevin Cox. I think that the combination of internal and external talent is critical because it provides different perspectives and different ideas, which are important for keeping a competitive edge. I would also point out that we have a deep bench. The leaders below these people are extremely strong.
Some have grown up in American Express and others have been recruited from the outside. Our strong brand and reputation attracts talented people at all levels and from all backgrounds. We view ourselves as a leadership training ground, demonstrated by the fact that we have populated the industry with a number of our alumni who are in very senior positions with other institutions. But many of our best people have decided to stay and build great careers here. We're very proud of our legacy of developing great leaders.
Having a strong and diverse leadership team is important as we operate in an ever changing environment. Today, we have a more positive global macroeconomic environment than we've had in a while, which is contributing to increased consumer confidence and better corporate earnings. However, we're well aware that the economy runs in cycles and as we think about credit in particular, we always look to manage our credit exposure through the cycle. Customer needs are evolving and how they interact with each other and how they interact and who they choose to do business with are ever changing. The ubiquity of mobile devices is driving much of this phenomenon.
Technology disruption is part of our environment, whether it's blockchain or any number of Fintech companies that are innovating key elements of the payments and commerce space. We've seen technology affect a number of industries, and we are paying close attention to potential disruptions in the payments industry. In fact, we look at technology disruption as an opportunity. Established companies like American Express have scale, recognizable brands and strong balance sheets. This can be an advantage if you can leverage these assets while embracing the opportunities that emerging technologies provide.
The growing importance of data is front and center today, and we'll talk about more we'll talk more about the role data plays in our business model as we move forward. This has been and will continue to be an important asset for us. Obviously, we're constantly on guard about the competition, and it's no secret that it's been intense for some time. We see it at different levels across all of our businesses and geographies. Networks are displacing cash and I view this as a positive development.
WeChat, Alipay, Zelle, we're seeing more and more entrants in this space and this trend will only continue as consumers and businesses get even more confident doing business electronically. Finally, the regulatory environment in which we operate is constantly changing and it's prompting us to make changes in our business in many parts of the world, including Europe and Australia. Against that landscape, I believe we are starting 2018 from a position of strength. We had record billings last year of over $1,100,000,000,000 We had adjusted revenue growth of over 8%. We have reset our cost base and successfully took out over $1,000,000,000 This success combined with revenue growth enabled us to invest back into our business.
We announced some key co brand deals with Hilton and Marriott, and we were honored to win the 2017 J. D. Power Award in their annual credit card satisfaction survey for the 9th time. All in all, we've generated a lot of momentum that we'll build on in 2018 and beyond. 2 years ago, we established a game plan that focused on 3 objectives, accelerating revenue growth, resetting our cost base and optimizing investments.
In connection with those strategic objectives, we set the financial goals you see on the right. And we overachieved on those goals, delivering strong earnings and exiting Q4 with 9% FX adjusted revenue growth. Now let me turn to the reasons why we believe we can continue our momentum. First, I want to talk about what sets us apart from our competitors, and that's our differentiated business model. For many years, we have talked about our differentiated business model focusing primarily on the closed loop advantage and the data that it provides us.
The data advantage is real and significant and we will continue to rely on it to grow our business. But just focusing on the closed loop misses the biggest story. The fact is that there are several components to our business model that makes us different from our competitors. Our customer mix and geographic diversity, our revenue mix, our integrated payments platform, our ability to generate steady operating leverage as we grow, and our world class brand and service. I'll speak to each of these components directly because understanding what drives our differentiated model is essential to understanding how we intend to win in the future.
Our first differentiator is the diverse mix of customers that we serve and the scope of our geographic footprint. We operate in over 130 countries globally, 43% of our billings are from consumers, 40% from commercial clients and 17% from network services partners. And while we have 65% of our billings from the U. S, 35% of our billings are from international with our highest growth rates coming from outside the U. S.
The second key differentiator is our ability to generate an attractive mix of revenues. As you can see on this slide, 75% of our overall revenues still come from spending and fees. We're much more reliant on spending and fee revenue than our peers, who rely primarily on interest derived from credit products. A key to continued revenue growth is our ongoing efforts to expand our merchant base, so that we can meet more of our customers' spending and lending needs. As Anre will talk about later, we're making some conscious trade offs in a discount rate as we continue our focus on growing merchant coverage.
The result, more places for our card members to use our products, which means more revenues from both spending and lending. The 3rd key differentiator and perhaps the most important is our end to end integrated payments platform. When we look at successful new global business models, integrated models that easily enable commerce partners to plug into their platforms like WeChat and Alipay have shown that they can have success. This has been an important but not well understood part of what has and continues to make American Express different. As an end to end integrated payments platform, we have relationships with all players in the commerce path and we perform all aspects of the payments process between them with no middlemen.
We operate our integrated platform at scale globally with millions of card members and merchants. And because we have end to end relationships, we own all the economics on a transaction. This enables us to maximize value from our business, drive the spend lend revenue mix I discussed earlier and meet our customers' evolving needs. Additionally, because we have direct relationships with buyers and sellers, we have the flexibility to price and structure transactions to meet buyer and supplier needs, which is especially important in the B2B space. Our ultimate objective is to facilitate commerce between all parties connected to our platform, including our business partners.
There are many examples of how we connect partners seamlessly with our platform, including enabling pay with points with our merchant partners, facilitating authorization and settlement with processors like Square and Stripe, extending the platform into travel services with American Express Leisure and Business Travel and integrating into the commerce path of our co brand partners. As we continue to expand the relationships connected to our end to end integrated platform, we will continue to increase the volume of transactions on our network, which will drive even more scale and more revenue. Integrated platform serving a diverse customer base that spends at scale, combined with millions of merchants we have relationships with globally, gives us vast amounts of data. By putting that data to work, we have best in class fraud rates, we get insights from our data analytics that we use to deepen relationships with customers and to help our merchants do more business. Our partners benefit as well as we allow them to plug into our network to take advantage of the analytics our platform creates.
And the data from our integrated platform powers our dynamic underwriting capabilities, which creates our no preset spending limit. We're the only payments company that has a no preset spending limit capability at scale and that creates spend capacity for our customers. The data we derive from our integrated platform, coupled with our risk modeling expertise, enables us to approve individual transactions and deliver more spending flexibility than our competitors for consumers and or for small and medium sized businesses. In fact, we estimate our U. S.
Consumer Charge Card members spend 5 times as much on their American Express cards as they do on competitor cards they carry. And we can give our U. S. Small business customers 3 times the spending capacity as our competitors with the appropriate credit discipline in place. Our business model provides benefits on the expense side of the equation as well.
As you know, we run a global consumer, commercial, merchant and network business, which no one else does. By organizing our businesses globally along customer segments and creating centers of excellence to serve all of these businesses, we use our scale to generate steady operating leverage as we grow. As you can see on the left, over the last 8 years, our adjusted OpEx grew by only 4%, while our billings grew by over 50%. Additionally, we have redirected dollars into investments to build our business for the future. We have a long history of managing our expense base prudently and an operating model that gives us greater flexibility.
And because we are much less reliant on bricks and mortar infrastructure compared to many of our largest competitors, we can be more nimble and flexible in adjusting our cost base to fuel investment spending as we continue to shift to digital. Our brand has always been one of our greatest and most important assets. We have evolved our brand messages over the decades to address new customers and their growing range of interests. Next month, we'll be launching a new communications platform, which includes a new advertising campaign that builds on the brand's traditional strengths of trust, service and security, but in a new, more modern and more comprehensive way that reflects the unique nature of our differentiated business model. This is the first time that we've launched a campaign that speaks to all the customer segments we serve with a single overarching message.
This new communications platform will be global. It will be used for both our consumer and business segments and it will drive home what our brand is all about, building enduring relationships with our customers. Underpinning our entire business is our heritage and ongoing commitment to service excellence, which is unrivaled in the industry. Hopefully, what I've been able to highlight is that our business model is very different than Visa and Mastercard. It's different than the PayPal model and it's different than our card issuing and merchant acquiring competitors.
What makes us different is not just one of these elements, it's the combination of all of these elements, working together to drive customer and shareholder value. This is what makes us different. The diversity of our customer base, our geographic footprint, our revenue mix, our integrated payments platform that includes end to end relationships, data and economic value, our ability to generate steady operating leverage as we grow and a world class brand and service, which symbolizes a standard that I believe defines this category. We are convinced that our model drives results that remain the envy of the industry. In fact, the average annual card spending powered by this model is 3 to 4 times that of the competition and the revenue mix this model generates is extremely attractive.
To sum up, our differentiated business model has been instrumental to our competitive advantage and we believe it will be increasingly important in our future. Now I want to briefly touch on the opportunity that we'll put that model to work against. The opportunity in the payment space is robust across all segments globally. On a consolidated basis, the global opportunity in payments continues to grow, both from a consumer and commercial perspective, as cash and checks continue to decline as preferred payment methods. According to industry analysts, the global opportunity for card spending is approximately $29,000,000,000,000 for consumer cards and $19,000,000,000,000 for commercial cards.
While the overall opportunity for commercial cards is smaller, it is as large as it is for consumer at approximately $17,000,000,000,000 because it is far less penetrated. Overall spending on consumer cards is expected to grow by a 10% CAGR from 2016 to 2021. At the same time, actual penetration was at 42% in 2016 and is projected to grow to 54% by 2021. If you look at consumer card penetration by region, there are huge opportunities to continue to expand spending in most areas of the world, as the only countries today that have over 50% penetration are the U. S.
And Canada. On the commercial side, non cash commercial transactions are expected to grow 6.5% CAGR from 2015 to 2020 and we expect healthy growth across all regions. That's a high level view of the opportunity. Now I want to talk about how we're going to take advantage of our differentiated business model to capture our share of growth opportunities going forward. With this much opportunity, there is a long list of places where we can act, but we will stay focused on a core set of strategic imperatives that will drive our future growth.
In doing so, we will build on our core strengths, while looking to innovate and to expand into the appropriate adjacent areas that will further our growth. The 4 strategic imperatives are strengthening our leadership in the premium consumer segment, extending our leadership in commercial payments, strengthening our global network to provide unique value to all our constituents, consumers, business clients, merchants and partners, and playing a more essential role in the digital lives of consumers. Doug, Paul and Andre will elaborate on our specific strategies and tactics in each of these areas. But to give you a sense of where we are and where we want to be overall, I'll provide a high level view of these 4 areas individually. First, consumer.
Today, we are the leading consumer card issuer globally by volume. We have a high spending, high margin global customer base. We have a diverse range of flagship products and services and a distinguished brand. And you'll hear from Doug, in order to meet the evolving needs of our current customers and to attract new customers to our franchise, we're going to focus more on the overall experiences we provide so that we can build loyal relationships that last a lifetime. We plan to deliver membership benefits that span multiple aspects of our customers' everyday spending, travel and lifestyle needs.
We'll deliver a range of experiences that attract high spending customers across all generations. And to meet the digital generation where they are, we'll bring more mobile and digital capabilities to our overall offerings. Turning to commercial. We have a very strong position to build on. Today, we're the number one commercial card issuer globally.
We have relationships with over 60% of the Fortune Global 500. We're the number one small business issuer in the U. S. In international, our SME billings grew 17% in 2017. And while we are the leading small business issuer in most countries outside the U.
S, we have a large opportunity for growth as we currently have relationships with less than 5% of all SMEs in our 8 lead countries overall. What you'll hear from Paul is that going forward, we want to become the leader in B2B payments across all commercial segments. We will do this by building on our relationships with 60% of the Fortune 500 and leveraging other components of the integrated payments platform, such as small business customers and merchants who are their suppliers. Additionally, we want to become the working capital provider for our existing small and mid market customers globally, fleet of payment products to meet their intermediate and short term financing needs. Of course, to achieve our aspirations in our consumer and commercial businesses, we need to continuously evolve our core offerings and bring new and innovative products and services to market.
As you will hear from Doug and Paul, that is already well underway. They will tell you more about the results we're seeing in our Platinum portfolio, where we had our best year ever from a billings perspective, acquisition perspective and retention perspective. These results speak to the continued strength and relevance of our brand across both our consumer and our commercial business. We also launched a brand new suite of Hilton cards for both consumer and small business owners. And in Canada, we launched a new Cobalt card targeted specifically for millennials that is off to a great start.
And on the commercial front, we're launching more flexible, short term, non card working capital solutions for small and midsized businesses. We're expanding our merchant financing and we're building out our cross border financing solutions. In addition to new products, our strategy for growing both our consumer and commercial franchises will rely on making our existing customers a platform for growth. Not only will we look to take advantage of the growth opportunities within each customer segment, but by leveraging the relationships that are created by our integrated platform, we will take advantage of the relationship across customer segments where we have a significant opportunity. Today, for example, over 70% of our SME customers have only 1 American Express Business product, even though we have a whole suite of products to help them manage and grow their companies.
Also, less than 40% of our U. S. Small business customers have a consumer relationship with us. Additionally, our share of our U. S.
Consumers customers lending business is about half of our share of their spending. We are confident these numbers will grow. We intend to use big data analytics and our marketing capabilities to get the right additional products to the right customers. So as you can see, we have terrific opportunities to connect and engage more with our current customers to grow our business. Our 3rd strategic priority is to strengthen our global network to provide unique value to all parties, consumers, businesses, merchants and partners.
Looking at where we are, we have strong coverage in the U. S. And more targeted coverage outside the U. S. Our bank partnerships have been centered on generating issuing revenues where they operate.
And we've got a network infrastructure that meets our customer needs today. In terms of where we're going, as you know, we're focused on achieving parity coverage in the U. S. And on improving coverage to support our consumer and business customers internationally. We're leveraging bank partnerships to continue to acquire new customers and increase coverage.
Industry continues to evolve with more types of transactions being processed electronically, such as cross border payments and other non card transactions, we need to ensure that our network can process many different types of transactions in addition to traditional card transactions. As a result, we will continue to invest in our network so that we can process additional payment transaction types as well as increase the network's flexibility and agility so that we can offer unique benefits to our customers and provide greater capabilities to our business partners. As we invest in our network, it will strengthen our ability to bring continuous innovation to those who use it. For example, we've been using our network to significantly expand our digital offers and pay with points capabilities over the past several years. We've also launched Apple Pay, Google Pay and our own version of those capabilities Amex Pay in a number of regions around the world.
We'll continue to innovate here, including adding more capabilities that enable our business partners to easily and securely plug into our network to provide unique value to our mutual customers, while respecting customer preference and protecting card member and merchant data. Turning to our 4th strategic priority. We will strive to make American Express a more essential part of our customers' digital lives. This priority cuts across all our businesses, consumer, commercial and network, and it's global in scope. We already have a growing audience of customers who interact with us digitally.
We're providing more digital servicing options and doing more of our marketing via digital channels. While our digital audience is growing, engagement is modest to date and it tends to be transactional in nature. Going forward, our goal is to make our mobile experience serve as the hub for membership for all of our card members and to expand our digital solutions for our merchants. Our app will move from being a functional way to pay your bill and be seen as a robust and essential travel and lifestyle companion. We will do that organically through acquisitions as well as to continue to launch partnerships with digital innovators.
By doing these things, I believe we'll make American Express a more essential part of our customers' lives. So that's a quick overview of where we are in our 4 strategic priorities for growth. What does it all add up to from a shareholder perspective? It really comes together in a simple financial model. We have a diverse and growing set of businesses.
We have attractive opportunities for growth, and we are committed to innovating in all of our businesses to increase both spending and lending. We use our expense base to generate steady operating leverage as we grow and we have significant capital strength. Putting these elements together thoughtfully and effectively will better position us to deliver the kind of steady and consistent EPS growth that our shareholders have come to expect from American Express. Looking at 2018, we expect this financial model to deliver growth across both the top and bottom line. We expect to deliver strong revenue growth and earnings per share growth between $6.90 $7.30 let me come back to where I started.
What I hope I've shown you today is that we have a differentiated business model, which has been instrumental in our competitive advantage and which we believe will become increasingly important in the future. The payments industry is expanding and offers rich and broad set of growth opportunities for us. And we will build on our existing strengths by focusing on our investments in 4 strategic priorities that extend across our businesses to drive growth. So next, we'll talk about how our 3 businesses leverage our differentiated business model to take advantage of those opportunities for growth. And let me now ask Doug Buckminster to come up and talk about our global consumer services business.
Thank you, Steve. Good afternoon, everyone. So 2017 was a tremendous year for the global consumer business. A focused set of investments and disciplined execution built broad global momentum and this momentum was evident in customer acquisition, billings and loan growth. And this volume growth translated to strong top line acceleration.
This acceleration was due in part to our focus on increasing the productivity and efficiency of our investments and expense base And the growth momentum also benefited from an intensified focus on experience based innovation, innovation that differentiates membership, that defines our brand and that fuels growth. So let's look at a few of the numbers. The numbers I'll show throughout this presentation proprietary consumer issuing only. Andre Williams will cover the network services business. In 2017, we saw strong and accelerating momentum in build business acquired, that's billings from new customers, as well as total billings and loans that together are translating to best in industry revenue growth rates.
In Q4, we achieved an exiting growth rate on revenue of 12%, no adjustments required. We also enjoyed this considerable strength across geographies. We saw strong performance accelerating throughout the year in our U. S. Consumer and International segments.
In the U. S, we gained share of loans and revenue, but we did not hold billing share. This is a 2018 focus area for us. In international, very strong share gaining volume growth translated to 8% revenue growth. The gap between the volume growth and revenue growth is explained in part by discount rates, adjusting to regulation in Europe and Australia, as well as comparatively lower levels of net interest income outside the United States.
We are experiencing a breadth of strength in international that is unprecedented in my 30 years. All our major countries, with the exception of Canada, are growing in double digits and Canada has recovered from the loss of a co brand portfolio and is poised to resume share taking levels of growth. International Consumer accelerated to 14% billings growth in total in Q4 and is now taking share in nearly all major countries. This growth is the result of country level plans that bring an enterprise view that complements our global line of business structure. These plans include how we flex our model in response to regulation in areas like Europe and Australia.
It also reflects our ability to move investments to where the greatest opportunities are and our commitment to build once for many in areas like digital product, benefits and services and technology platforms. Finally, we have the most talented, creative and disciplined leadership at country level that we've had in my 30 years. So a focused set of priorities and disciplined execution have produced this strong momentum And we'll retain this focus, but with the luxury of shifting more investment and mind share towards innovation. With the rest of my time, I'll move through 5 focus areas that build on our differentiated business model. First, innovation based on experiential value, driving growth by better serving the needs of our 50,000,000 consumer members, building our lending business while managing volatility capitalizing on our strong global co brand roster while bringing our differentiated capabilities and assets to bear, retaining a relentless focus on driving efficiency and productivity from our marketing spend and expense base and all of these areas powered by the accelerating digitization of the customer experience.
So let's start with our efforts to differentiate membership through improved experience. I'll highlight 3 innovations today, The relaunch of our iconic U. S. Platinum product, which was about to begin when we sat here at this time last year. Ask Amex, a mobile travel and concierge pilot that we introduced last year and PayItPlanet, a new service introduced in Q4 to 18,000,000 U.
S. Lending customers. Last year at this meeting, I introduced the new Platinum value addition to commodity elements of price and rewards. In addition to commodity elements of price and rewards. We also decided that we would price for the incremental value we put in this product, raising membership fees from $4.50 to $5.50 in the face of intense competition.
So how do we do? Bottom line, we did a really good job of better serving our customers' travel and lifestyle needs. Calls to our travel and lifestyle unit as well as global lounge visits increased significantly. 50% of customers enrolled in the new Uber benefit and 290,000 customers reached out to us and proactively requested early access to the new stainless steel credentials. These are impressive indications of member engagement and they also demonstrate the appeal of the new value enhancements.
This value infusion resulted in record new acquisitions, all at the $5.50 price point and nearly half of these new customers were less than 35 years of age, strong evidence of generational relevance at the very top of our product line. Billings volume bounced back from lowtomidsingledigitgrowthint2016andexitedinthehighteens. And voluntary attrition remained at low levels despite fierce competition and a fee increase. This is an example of us playing offense, not defense, and it's also a clear demonstration of our ability to create differentiated value, communicate that value effectively and price for it.
We are
focused on ensuring relevance to a new generation of members and Pay It Planet was founded on insight around this generation's desire for financial control and a preference to exercise that control via a mobile interface. We tapped into that unmet need with PayItPlanet, a new service now available to 18,000,000 U. S. Lending customers, a simple, intuitive experience that's the product of intensive research and a complex tech build. It's a feature whose use and appeal can best be described with a short video.
For those of you following along via webcast, please click on the link to the left of the slides titled Pay It Plan It.
June has been a crazy expensive month. I'm in 3 weddings. I had to buy 2 nice dresses and one
You've got to be kidding me. For putting me
in this dress, she's getting napkin rings. Plus, I've had the usual expenses like yoga, dry cleaning, and meals. Every week, I use the new pay it feature of my American Express card to control my balance before it turns into debt mountain. See you next month. Bye bye.
And done. I have everything under control until suddenly my dream chair goes on sale. My first thought, no way am I buying this right now. Then I remember with my American Express card, I can plan it. I choose the payment plan for the chair that's right for me.
There are no hidden fees or interest to calculate. I know exactly how much I'll be paying each month. 6 is just right. I can get what I need and stay in control of my finances. Thanks to Pay It and Plan It.
I can even handle a crazy month like June.
So we're at the beginning of this journey, but early signs are encouraging. Pay It is being used for small everyday transactions of around $30 on average, think coffee shops, convenience stores, while Planet is being used to structure larger transactions, typically around $600 predominantly in travel and retail categories. And we're hitting our design target with millennials 3 times as likely to use this feature as other customers. And planners, 40% of planners, those are folks that turn a transaction into an installment plan, have not historically borrowed from us. We think we're on to something.
Platform innovations like Pay It Plan It cut across products and can spawn additional innovations. In 2018, we'll tune the user experience, we'll dial up marketing, we'll test pricing in terms, we'll leverage this feature as a differentiator in new customer acquisition and we will explore merchant integration. Think about merchants being able to offer 0% for 6 months on selected products or customer segments. In Global Consumer, we are on a quest to mobilize membership. That is to bring all the services and support of American Express membership to the mobile device.
In 2017, we piloted Ask Amex, a chat based travel and concierge service and we were surprised by the results we saw. The pilot revealed substantial demand from our member base with high engagement from millennials and usage concentrated in 2 of our core focus areas, travel and dining, all with high automation rates right out of the box. The positive results led us to make a couple of acquisitions. We acquired the company behind the app that powered Ask Amex, Mezi and a U. K.
Based company that specializes in dining advice and booking. In 2018, we'll onboard those companies and their tech. We'll integrate Amex unique content like the Global Dining Collection, Fine Hotels and Resorts, preferred airfare, and we will further train the AI to ensure efficiency and enhance the overall relevance of recommendations. Finally, we'll integrate all of this functionality into our mobile app. This will provide another servicing channel for Platinum and Santorian customers to tap into their travel and lifestyle service, and it will also give us the opportunity to extend this service cost effectively deeper into our global member base.
Our model has long been predicated on a large high spending, high margin member base that's deeply engaged with our products and services. That's our proposition to shareholders, merchants and partners alike. And we're focused on strengthening the engagement levels of our 50,000,000 members. Existing customers have long been driving the majority of our loan growth and in 2017 contributed 11 percentage points to overall loan growth. On the spend side, we have higher share of wallet, but it struggled with growth in wallet share over the last couple of years.
Our focus on this metric began to pay off in 2017 when organic growth contributed 2 percentage points on a full year basis and 3 percentage points on exit to overall billings growth. And as I showed last year, we have a track record of retaining greater than 97% of our billing space from year to year, and 2017 extended that track record. Customers who left the franchise for voluntary or credit reasons accounted for less than 2% of previous year billings. One key to better serving and engaging our members is increased adoption of our mobile app. We're doing a great job growing our app active base with growth rates of around 35% over the last several years.
And we're benefiting here from tech adoption trends across our base as well as the demographics of new customers. But we still have a significant opportunity to improve the frequency of visit to move from transactional to relational in our mobile service provision. We think Ask AmEx and Pay It Planet are examples of the type of content that will help move us in that direction. And in terms of demographics, maintaining generational relevance dictates a move to mobile membership. We're seeing increases in app adoption across our global new customer base, but it's especially pronounced among millennials, with 2 thirds of new customers app active within the 1st 3 months.
A powerful demonstration of advocacy and of our customers functioning as a platform for growth is the development of our member referral program. Pioneered in international, this program allows members to recommend a relative, friend or colleague for Amex membership. This volume has tripled over the last 2 years and accounts for greater than 10% of all consumer acquisition volume. And it's high spending, high margin, high credit quality volume. And this program is especially popular with younger members, with 54% of all referral volume coming from millennials.
So as you can see, driving increased engagement is not just about moving marketing dollars around. We've improved product value in areas like Platinum and the new co brands. We've introduced we're expanding services such as Ask AmEx, term loans and our Global Lounge collection. We're broadening our channel reach in digital and voice. And finally, we're enhancing relevance through data driven personalization and a major focus on merchant acceptance.
We're gaining traction and we have a long runway for growth from within our expanding customer base. So we've spoken over the last few years about the customer and competitive imperative to better meet our members' borrowing needs. So I'll provide an update on our progress as well as describe how we're positioning ourselves to compete effectively throughout the cycle. As you can see, we've ramped up loan growth in the U. S.
Over the last 2 years and we've also seen international loan growth, which is a smaller portion of total loans grow strongly in 2017. The 12% growth rates that we put up are approximately 2x the U. S. Industry growth rate. And it's important to note that this acceleration has primarily been driven by growth from tenured customers.
In 2017, tenured customers contributed 59% of total loan growth, up from 39% just 2 years earlier. And we like this shift. It's evidence of us deepening and better meeting our customers' needs. It also produces more cost effective lower volatility growth that has a shorter time to revenue than prospect driven growth. And while we've seen write offs increase modestly off record lows in recent quarters, yields have more than offset this increase, leaving net credit margin at its highest point in a decade at 8.3%.
And while net credit margin is an important benchmark, total net revenue to losses is an important measure of margin and ability to absorb volatility. The chart on the right demonstrates that our premium customer base and diversified revenue mix produces a net revenue margin of 15% for our U. S. Consumer business. Net revenue margin is simply total revenue less rewards divided by receivables.
And when you divide our net revenue margin by our loss rate, you get a loss coverage ratio of 9 times. That compares favorably to an industry benchmark of 3.8 times. And if you were to calculate this ratio, not on the U. S. Consumer business, but the global consumer business, we'd hit 10 times.
And if you were to include the revenues that global consumer spend drive in our merchant segment, you'd hit 11x. This substantial delta to industry norms is the result of us being a global integrated premium provider. Now I've shown this slide the last couple of years to demonstrate that our portfolio is healthier with lower exposure to high volatility segments than it was on the eve of the last recession. 45% less subprime, 46% low tenure AR as a proportion of total receivables. Now this does not make us immune to cyclicality or macro shocks.
No one here believes that. But we do believe a lower volatility portfolio with stronger margins should allow us to compete effectively in the down leg of the cycle. So what should you expect from us in 2018? You should expect a lot of what you've seen from us in 2016 2017, a continued focus on existing customers, one that we'll execute by continuing to revitalize our product set to drive growth and positive credit selection. We'll continue to harvest growth from new innovations like term loans and Planet, both of which are focused on existing members.
We'll continue to price for risk and strengthen margins, and we'll vigilantly monitor and recalibrate underwriting as stress emerges in certain segments. And finally, we'll invest to substantially elevate our risk and collections capabilities. Let's spend a few moments on our partnerships. 2017 was a very strong year for our co brand portfolios and for our efforts in partnership renewal and expansion. As you can see on this page, we grew volumes faster on partner portfolios than we did on the consumer business as a whole.
This is true in the U. S. And internationally, and we're proud of this. We believe it's evidence of our ability to bring distinctive capabilities to bear for the benefit of our partners and end customers alike. Our global reach, our travel and lifestyle assets, our servicing capabilities and our integrated model make us a very compelling partner for travel and entertainment co brands.
And we are focused on building on these distinctive capabilities. And we have a lot happening with our partners. New points advanced feature and a new millennial product with Delta, new product introductions and a portfolio conversion with Hilton as we move to become their sole issuing partner, new product introductions with Marriott and a range of other initiatives with our global partners. These include a launch of a new co brand product with West Pac, a top 4 bank in Australia. We're also very excited to innovate with partners on new capabilities like Planet and Ask Amex.
We think it's an opportunity to create unique value that is difficult to get elsewhere for our partners and our mutual customers. We are aware that industry competition and our commitment to maintaining a strong growth and return profile means getting more of our expense base and our marketing investments, not just this year, but every year. One key indicator to our competitiveness is our ability to scale new customer acquisition volumes and to do so at increased efficiency. It's not an easy task in a highly competitive industry. That said, this slide illustrates that we've been able to increase acquisition investment levels, the blue bars, by 20%, while improving the overall efficiency of those investments.
In 2017, we increased billings acquired by 18% while holding investments virtually flat. This is the direct result of improved products, partnerships, prospect targeting and an application experience that has friction removed. This growth in new customer billings is the product of a 5% growth in new customers, coupled with a 13% increase in new customer average spend. And these gains in efficiency and engagement were coupled with strong credit quality and bringing in 62% of customers on fee based products, evidence of our ability to engineer value into our products and to communicate that value effectively to prospective customers. A big part of our efficiency story in new customer acquisition is our investment in digital channels over the last few years.
I showed a few slides ago that new customer billings are growing in the mid teens and digital channels are a growing slice of that growing pie. Digital channels are a high efficiency set of channels that are maintaining efficiency as they scale and as they displace less efficient channels. We acquire about $28 in billings per dollar invested in digital channels compared to $20 in non digital channels, a 40% yield improvement in digital channels. Continuous innovation is required to drive this volume shift and efficiency. And the right hand side of the page highlights one of those innovation areas.
More applications are submitted from mobile phones than PCs and tablets combined. Making applications easier to complete through an improved user experience is key to maintaining efficiency. Our focus on a mobile first application experience has yielded substantial improvements in completion rates over the last few years. And in 2017 alone, completion rates on mobile increased by 9%. It sounds small, but against an investment base our size, it produces real leverage.
The majority of those applications are being completed by the newest generation of consumer. In 2017, millennials accounted for 36% of all new consumer acquisitions and 50% of mobile applicants. These customers show strong engagement willingness to pay a fee for value and a propensity to apply and serve on mobile. We're working hard to build products and serve on mobile. We're working hard to build products and services that meet the needs of this generation
and allow them to
consume the membership, the value of membership on their device of choice. Another source of long term efficiency is the trend towards self-service. We've seen an extended period of customer volume growth exceeding call volume growth. And the left hand chart shows the And what you see is not particularly surprising. You see self serve rates increasing over time among all age ranges.
This is the product of technology adoption trends as well as our work to add functionality and improve the usability of our mobile product. You also see younger generations self serving at much higher levels and increasing self serve rates more quickly. The result is a 9 percentage point shift in self serve rates over this time period. And we did not force this or incent it. We simply enabled it, and we believe this is a long term tailwind for our business, driven by demographics and channel choice of new customers, with improved functionality and usability playing a key role and finally, a wider deployment of chat backed up by AI to ensure efficiency and service quality will further accelerate this trend.
So overall, we believe we have
a rich set of opportunities to drive efficiency in 2018 and beyond. New compelling co brand and proprietary products will drive acquisition efficiency and unlock growth from existing customers. The shift to digital for marketing and servicing will continue to produce meaningful gains. And our continued focus on engaging existing customers and the growth of member referrals will drive marketing efficiency and customer loyalty. So we end where we started.
We've built strong, broad momentum that we will sustain with experience focused innovation, leveraging the customer as a platform for growth, a continued focus on better meeting our members' borrowing needs while managing volatility, capitalizing on our strong global partnership portfolio, maintaining a relentless focus on efficiency and productivity, all fueled by the accelerating digitization of our business. So with that, let me introduce Paul Abbott to take you through commercial and I'll see you in the Q and A.
Thank you, Doug, and good afternoon, everybody. Today, I'm going to talk about how we are extending our leadership position in Commercial Payments. Commercial Payments continue to be a large and a growing part of American Express' overall business. And there is a very long runway for growth in this business, particularly with small and midsized companies. Our strategy is working.
We have strong momentum from new customer acquisition and also from existing customer engagement. We are very confident that our commercial payments business will continue to be a strong growth engine for the company due to our global scale and our differentiated business model. I'd like to start today with a brief overview of the commercial payments business, our leadership position and the strong momentum that we have built. Then I'd like to focus on some of our competitive advantages as a business, how they differentiate us and the strong platform for growth they create. As Steve mentioned earlier, American Express is the global leader across all commercial payment segments from small to midsized businesses to the largest global companies in the world.
We serve 3,300,000 businesses with 14,000,000 card members and we serve them in over 200 countries. In the U. S, we're the leading issuer of small business cards, and our small business card portfolio is actually larger than our 5 nearest competitors combined. Our corporate card is and has long been the industry leader, and we've established relationships with over 60% of the global Fortune 500. Our commercial business is a significant driver of growth for American Express, and we delivered strong financial results in 2017.
Billings growth accelerated to 10%, and we delivered 40% of the company's total billed business. The commercial business is much more spend centric than the consumer business, with business loans only representing 16% of the company's total loans. That said, we continue to build good momentum in our lending business with 18% FX adjusted growth in AR. Total revenue growth in 2017 was 7%. 90% of our commercial billings are actually on charge card products with 10% on credit cards.
Although we continue to maintain a leadership position in T and E, you will see here that 2 thirds of our billings now come and importantly, it's growing at 11% CAGR since 2015, which is 5 times faster than T and E spend. We manage our commercial business in 3 distinct segments: global and large clients, U. S. Small and medium enterprises and International Small and Medium Enterprises. Here you'll see the billings distribution across those three segments.
The global and large segment includes companies that generate over $300,000,000 in revenues annually. This segment is now 25% of our billings and is growing at 5 percent. The Global S and E segment is now 75% of our global billings. It's growing at 10% in the U. S.
And 17% in international. Our commercial strategy is rooted in the strategic objectives that we've set for each one of these three segments. For our global and large customers, we seek to maintain our position in T and E, whilst becoming a leader in B2B payments. In the U. S.
SME segment, we're focused on driving growth through expanding B2B spend and business financing to become a leading working capital provider for our existing customers. In countries outside the United States where business card payments are really under penetrated, we have considerable potential to drive growth to acquiring more new customers. So that's some context on our commercial business. Now let's take a look at the growth opportunities we have. Total business spending globally represents a significant opportunity for us.
Much of the spending done by companies today is still on checks and ACH. The global opportunity for commercial payments is estimated at $19,000,000,000,000 Our existing customer base is also a platform for growth. 71% of our existing SME customers around the world have just one commercial relationship with us, which creates a large opportunity for us to sell our broad range of B2B payments and business financing solutions. International expansion represents another attractive growth opportunity for us. Less than 5% of small to midsized businesses in those top 8 international countries combined have a commercial relationship with us, creating another significant runway for growth.
So American Express is already a global leader in commercial payments and our business model creates some really important strategic advantages for us that position us for continued growth. And I'd like to focus on 3 of these competitive advantages that are really powering the success of our business. First, our integrated payments platform second, our industry leading product sets and third, the power of our global acquisition and customer engagement ecosystem. As you heard from Steve, one of our most important is our integrated payments platform. This creates access to richer data and insights, it creates a network of buyer and supplier relationships and it creates real economic advantage for our customers.
So let's take a deeper look at how these advantages play out in the commercial business. First of all, how are we capitalizing on our data and insights advantage? With access to buyer, supplier and partner data, we utilize this information at scale to deliver unique insights and benchmarking for our customers. These powerful insights drive savings from policy compliance and improved terms with suppliers. Let me show you a couple of recent examples of how we use buyer and supplier data and benchmarking with our customers.
We identified for one of our global customers that they were paying 35% higher average daily rates for hotels booked in Midtown, New York compared to their peers. We could see that their peers got better deals by consolidating spend with a couple of specific properties. We can provide clear actionable recommendations on how they can save cost. In another example here, because we can track the exact time, the location and the cost of each transaction and we can benchmark that against customers in the same industry. For another one of our global customers, we could show them that their average employee spend on meals between 6 pm and midnight in Sydney was 73% higher than their peer group.
We've also developed a suite of B2B insights using our own spend data, but also leveraging $5,000,000,000,000 of customers' payable spend. Using our benchmarking analysis, we helped a global publisher negotiate better payment terms with 50 large suppliers, helping them to extend the days payable outstanding by 5 to 10 days and improving their cash flow position by $10,000,000 month to month. So these are just a few examples of how our integrated payments platform and our global scale come together to create unrivaled transaction information. With data from over 60% of the Fortune Global 500 our analytics and our recommendations have helped customers to realize significant savings on their travel spend, their entertainment spend and their broader supplier spend. Another advantage of our integrated platform is our vast network of buyer and supplier relationships.
Let me give you another example of how this works in B2B payments. Growing B2B payments requires creating value for the buyer and for the supplier. Because we have direct relationships with the buyers and the suppliers and we don't operate with a rigid interchange pricing model like multi partner networks. We can work with the buyer and the supplier directly to agree pricing based on the value of a specific spend category or even the value of a specific transaction type. This pricing flexibility gives us a significant advantage in B2B payments, specifically for large and global customers that require more tailored, more flexible pricing.
In addition, as a merchant acquirer, we also have our own dedicated teams that can go out and onboard B2B suppliers directly for our customers in a very targeted way. We also have the ability to sell our business products to our tens of millions of existing consumer card members and merchants around the world. The third advantage here generated by our integrated platform is economic value. First of all, our commercial underwriting and no preset spending limit capabilities enable us to offer higher spend capacity. As Steve mentioned earlier, for U.
S. Small businesses, on average, we're able to offer 3 times the spend capacity versus our competitors. But actually, if you look at the larger customers within the SME segment, we can offer 11 times the spending capacity versus our competitors, which is critical to effectively manage the higher spending needs of these B2B customers. Because our integrated platform overall is optimized specifically for business customers, This greater spend capacity leads to our commercial customers generating 2.5 times the average spend per basic card member versus consumer. Finally, as a network and as an acquirer and as an issuer, we generate revenue from each of these three activities, which creates a larger profit pool that we can invest in higher value products for our business customers.
So in summary, our integrated platform delivers powerful data and insights, pricing flexibility, direct buyer and supplier relationships, a higher spend capacity and an economic advantage. These combine to create a real competitive advantage in commercial payments. To compete effectively in commercial payments, you need a product set to meet a wide range of business spending and business financing needs. Today, we offer a diverse suite of products exclusively designed for businesses. Our foundation, of course, is based on our industry leading charge and credit cards for small and midsized businesses and our corporate card products and business travel accounts for larger companies.
We've also developed a range of supplier payments and business financing solutions, such as purchasing cards, buyer initiated payments, virtual payments, cross border payments and short term business financing. And these are creating new growth opportunities for us. So let's now take a look at 3 product innovations that are driving growth in the commercial segment. First of all, the relaunch of our U. S.
Business Platinum Card second, working capital terms and lastly, cross border payments. So as an example of the power of our core products, we refreshed our U. S. Business Platinum Card in October of 2016. The new benefits include 5 times points on airlines and hotels booked on amextravel.com, 1.5 times membership reward points for transactions above $5,000 and 35% more redemption value through an enhanced reload on certain air transactions.
Our objective here, to acquire more new customers and to capture more of our existing customers' supplier spend. And just as Doug shared in Consumer, this strategy is also working in Commercial. Last year, we saw a 21% increase in build business growth in the U. S. Business Platinum portfolio, a 13% increase in the number of accounts since we refreshed the product and an 11% reduction in our customer attrition rate.
Importantly, though, we also saw a 26% growth in the number of transactions over $5,000 validating that our customers see tremendous value in these business specific benefits. Given the success that we've seen here in the U. S. In 2018, we're going to refresh our Business Platinum product in a number of additional countries. While our commercial business is heavily spend centric, we view business financing as an attractive adjacency for us and we will continue to grow it judiciously.
Across the spectrum here that you see of financing for business customers, we are focused on short term, purpose driven short term working capital solutions. And the risk profile of this segment is lower for longer term business loans. Our overall objective here is to become the working capital partner for our small and midsized customers, providing access to capital to help them and their businesses thrive. In 2016, we introduced working capital terms for SMEs in the U. S.
This is an innovative digital non card financing solution that we offer to qualified existing customers. We offer up to $750,000 in short term credit lines at competitive fees. Customers receive loan decisions within minutes from completing a quick and simple online application process. Payments can be made to any verified supplier, whether they're an American Express merchant or not, and the customer has the flexibility to pay in 30, 60 or 90 days.
Let's Let's take a
quick look at how it works. And for those of you following along via the webcast, please click on the link to the left, which is titled Working Capital Terms.
What if you had a pause button for paying vendor invoices,
one that makes sure your vendors get paid promptly,
while
the money stays in your business bank account for up to 90 days.
Welcome to working capital terms from American Express. Here's the way it works. You enroll online, and you get a decision in as little as 60 seconds.
Enter your bank account information,
then add
your vendor and their information. We'll tell
you how much your to request funds. When you get an invoice from your vendor, let us know how much you need based on the amount you're eligible then choose your term. You have a choice of 30, 60, or 90 days to repay with the low fee, Whatever works best for you. Then we'll take it from there. We'll pay vendor invoices within 2 business days via ACH, but it's clear the payment is coming from your business.
To make paying us back easy, the funds and fee are auto debited from your bank account at the end of the term. You enroll in the program once and then request funds whenever you need them. No collateral is required. And as a valued American Express card member, we don't need to run a separate credit check when you enroll. Working capital terms from American Express.
So we believe that we are positioned to win here with a different approach, a different approach to the traditional banks and a different approach to online lenders. First of all, we have a large customer base to tap into. This has been one of the online lenders' biggest challenges. Without access to existing customers, they face higher acquisition costs. We offer a seamless online experience that delivers fast funding and is easy to use, as you just saw.
This compares very favorably to traditional banks whose application process can take on average over 25 hours to fulfill. And because we're only targeting our existing qualified customers,
risk.
In addition, we have a strong balance sheet and our cost of capital is lower than online lenders, enabling us to offer competitive fees. And of course, all of this is powered by our strong brand and our world class service. International trade represents another significant opportunity for growth, and we believe it's ready for disruption. We are connecting the key elements for efficient global trade into a new differentiated value proposition. We're bringing together our foreign exchange services, our international payments network and our working capital solutions to provide customers with a one stop shop for international trade with more choice and more value.
Customers can now choose to complete their international payment with us using the traditional ACH method or using their American Express product. Using their American Express product gives customers the advantage of rewards and benefits as well as flexible payment terms, which as you can imagine is highly valued by companies importing goods from overseas. On top of that, we announced late last year that we started piloting the use of blockchain distributed ledger technology to execute faster international payments and reduce the costs and delays associated with the traditional funds transfer process. Faster international payments with rewards and flexible payment terms is exactly what our customers are asking us for. This diverse industry leading product set that we've just reviewed is sold and serviced through a multichannel global distribution ecosystem.
That is a real competitive advantage for us. We have a global footprint, a comprehensive range of acquisition channels so that we can reach the right prospects at the right time with the right product and importantly at the right margins. We've also got the data capabilities and the products and the channels to engage our 3,300,000 existing customers at the right moment with personalized treatments. And we're exporting this proven model and these capabilities to new countries. We use a broad set of channels to acquire new customers.
These include digital channels, a large telesales platform and a field sales force of close to 4,000 people. We tend to acquire our largest customers in the field and our digital channels tend to bring in smaller customers at greater scale. We have now integrated these distribution channels to target the right products to the right customers across the SME segment around the world, but importantly based on our customer specific channel of choice. And this dynamic approach is much more efficient. And digital has been the largest driver of this efficiency.
Looking at the global SME segment, which is 3 quarters of our global billings, the digital channel delivered 39% of all new signings in 2017, and that's up from 32% the previous year. And we're achieving these results while increasing investment efficiency by 20%. Bringing in new customers is of course where it all begins, but it's certainly not where it ends. We also have developed a set of treatments to grow our existing customer relationships. When a new customer comes into the franchise, we engage them on their benefits early.
We engage them on their new product to capture more of their spending. And as the relationship develops, our variety of channels give us opportunities to expand the relationship to upgrade and to cross sell additional products. And as I mentioned earlier, 71% of the millions of SME customers that we have just have one commercial product with us. And while this has been steadily growing, it still represents a significant opportunity for us. This slide just shows the combined impact of multi channel acquisition and targeted customer expansion that we've just reviewed.
In the U. S. SME segment in 2017, projected volume from new customer acquisition increased 11%. Growth from our existing customer expansions increased 16%. And it's the combination of these two activities that are really driving the strong momentum that you see in our U.
S. SME segment. And we are now exporting this model to new countries. We have a big opportunity in the international SME segment to export this proven model, our proven acquisition and customer engagement capabilities. In our top 8 international countries together, they account for 87% of our SME business outside the U.
S. And in 2017, we achieved 17% billings growth across these countries. But importantly, less than 5% of the total universe of small and midsized businesses in these 8 countries combined have a commercial relationship with us, which gives us a long runway for growth. Our plan is to scale in these markets by deploying the proven products and capabilities that we have deployed in the U. S.
Across these less penetrated countries. This strategy is already working with new products, digital capabilities and customer engagement capabilities being deployed throughout 2017. And you can already start to see the impact here in some of the markets where we've started to make these investments, like the UK growing at 47% and Canada growing at 16%. As we continue to strengthen our digital acquisition and customer engagement capabilities throughout 2018 2019, we believe we are well positioned to maintain very strong growth rates in these countries. So in summary, the commercial segment is an important growing part of Amerit Express' overall business and it represents a major growth opportunity for us going forward.
Our strategy is working. We're the number one commercial card issuer globally, we're the number one issuer for small businesses in the U. S, We're the number one issuer for commercial products overall in the U. S. And we're the number one commercial issuer for Fortune Global 500 Companies.
And we ended 2017 with double digit growth and increased momentum. We have built a tremendous set of assets that give us a real clear competitive advantage, including our integrated payments platform, our industry leading product set, our acquisition and customer engagement model, our large and diverse customer base, our global footprint and of course, our world class service and brand. By continuing to focus on our segment driven strategy, using our scale and our strong competitive advantages, we believe that we can continue the strong momentum and extend our leadership position in commercial payments. Thank you. Now it's my job to, I think remind you that there's a 15 minute break.
So you get a chance to stretch your legs now and please come back in 15 minutes.
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So that's the idea. What do you think?
I don't like it.
No. Yeah. No.
In business, there are a lot of ways to say no.
Thank you so much.
So we're doing it.
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So we're to go? Yes.
We got it here.
What does that mean for purchasing?
Purchase. Let's do this. Got it. Put the pipe.
See. See.
Yes. That's
an interest. We
can get,
what's that mean for shipping?
Ship the goods. Here we go.
Got the green light. That means go.
Start saying yes to your company's best ideas.
We're going to hit our launch date.
Thank you. We have all types
of businesses with money, tools, and know how to get business done. American Express Open.
Oh, no. Sometimes we have to pay for things
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Time is a funny thing. Sometimes you're running against it. Sometimes you're looking for it. Sometimes you want time off to do nothing at all. There are things you want done on time and things you do in a lifetime.
So let us do the legwork and the hard work so you can find time for all the things you need time for. Personalized service with American Express.
So that's the idea.
What do you think?
I don't like it.
No.
Yeah. So In
business, there
are a lot of ways to
say no. Thank you so much. Thank you.
So we're doing
it. Yeah.
Start saying yes to your company's best ideas. We help all types of businesses with money, tools, and know how to get business done. American Express Open.
With the Blue Cash Everyday card from American Express, you get cash back on purchases, like supplies for your new fixer upper. You also get purchase protection when that new TV you mounted is a smaller downer and a breaker in halfer.
That TV?
Yep. It's covered. It's more than cash back. It's backed by the service and security of American Express membership.
Yeah. Yeah.
There are a lot of ways to say no. Oh. Oh, yeah. Let us help with money and know how so you can say yes to getting business done. American Express Open.
Earn points by paying for your holiday with a preferred rewards gold card. Even better, use your points for all sorts of things you might want or need, then make a splash when you arrive. Membership reward points from American Express. What will you all turn into? Search Amex Gold.
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Thank you so much, Hugh. Thank you.
So we're going to
go? Yes.
We got it yet.
What does that mean for purchasing?
Purchase. Let's do this.
Got it.
Put the pipe. See. See. Yeah.
Yeah. Yeah.
That's an interest. We can get,
what's that mean for shipping?
Ship the goods. Here we go.
You got the green light. That means go.
Start saying yes to your company's best ideas.
We're gonna hit our launch date.
Thank you. We have all types
of businesses with money, tools, and know how to get business done. American Express Open.
Sometimes we have to pay for things
we don't actually like, but there is an upside to everything.
Bring me some sunshine in your smile.
You could get 5% cash back on all purchases.
Over what?
Even the ones that didn't go to plan. The American Express Platinum Cash Back Everyday Credit Card. Search Amex Cash Back.
Every day on every street, in every town across
Ladies and gentlemen, our program is about to resume. Please return to the auditorium.
Business can be done from anywhere, in the palm of your hand and at the source. However you move your business forward, with business platinum, it's not about where you are. It's about where you want to take your business next. And nothing helps you like the resources and know how of the business platform card. Backed by the service and security of American Express.
Book your next day through the fine hotels and resorts program and enjoy a world of benefits for the platinum card.
For the future. As Steve shared this slide earlier, this is our integrated payment platform. You heard from my dad, from Paul about our businesses that serve consumers, our corporate card numbers.
But I'm going to
highlight our merchants sit on the other side of the platform as well as the network infrastructure that powers the platform. I'm going to cover several areas with you today. We're significantly increasing merchant coverage globally to strengthen our integrated payments platform. We're investing in our network infrastructure to provide unique value to merchants, acquirers, proprietary issuers and bank partners. And I plan to showcase for you the power of our integrated payments platform.
And given the level of interest, will also provide some visibility into our discount rate. But let me begin with merchant coverage. As you may recall, 2 years ago at this very forum, I shared an aspirational goal of getting the parity coverage with Visa and Mastercard in the United States in 2019. We also are focused on significantly increasing merchant coverage in countries internationally, and I'll give you an update on our progress there. But let's start with the U.
S. This data is from the Nielsen report, which is an industry standard publication, which estimates merchant acceptance using 3rd party sources. It shows the growth in merchant acceptance locations for American Express, for Visa and for Mastercard from 2013 to 2017. We've adjusted Visa and Mastercard acceptance locations to exclude the roughly 600,000 ATMs and retail bank branches where customers can get cash advances. With that adjustment, you'll see that American Express increased coverage in the U.
S. From 6,400,000 locations in 2013 to 9,000,000 in 2017, and Visa and Mastercard grew from 8,800,000 to 10,300,000 in the same period. Our GAAP to parity, as estimated by Nielsen, is in the neighborhood of about 1,300,000 locations, which we believe is directionally correct. OpBlue continues to help us expand our merchant network in the U. S.
As a reminder, OpBlue is a merchant acquiring program we announced in February of 2014. It allows 3rd party acquirers to contract directly with small merchants for American Express card acceptance. OpBlue helped us add more than 1,500,000 places into our network last year, and these merchants are in a variety of industries. For example, over 100,000 restaurants started accepting American Express in the last year. Over 60,000 salons and spas started accepting American Express last year and over 100,000 construction suppliers now accept American Express.
These include manufacturers and distributors building materials like lumber, concrete and electrical supplies. We have coverage information like this across industries and geographies that we've been using in our marketing to our card members to let them know of the many more places that they can use their card. And while we're making good progress expanding coverage in the U. S, there are some industries that are proving more difficult like government, healthcare and utilities. And each of these have their own unique challenges.
Some require complex technology changes for card acceptance and others do not have clear decision makers. So as a result, we're working on targeted efforts to help us close the gaps in those industries. But as you might imagine, the merchant arena is highly dynamic. There's constant churn with hundreds of thousands of merchants opening businesses each year and just as many closing their doors. So we'll always have more merchants to sign, but we feel very good about our work as we continue to aspire towards parity coverage in 2019.
But now let's go to merchant coverage outside the U. S. We've steadily increased merchant coverage internationally every year. Last year, we increased it 9% over 2016, And we're leveraging different acquiring partnerships to expand our merchant network, which in turn enables us to capture more business from our card members. Each construct is unique to the local acquiring landscape and regulatory framework.
We launched OpBlue in Canada and in Mexico and also in the U. S. Territory of Puerto Rico. Aggregators are important partners for us. They're helping us increase acceptance among micro and small merchants globally.
These partners include Square and Stripe, Adyen in Europe and BuildDesk in India, just to name a few. We're also working with banks and acquiring partners to help us with coverage in key countries, and I'll tell you a little bit about that now. We have 120 issuing and acquiring partners. They're in approximately 130 countries and territories around the globe, and our bank partners have issued 48,000,000 cards on our network. Historically, we've been focused on driving build business and cards in force from our bank issuing partnerships.
We've begun to see build business slow to 5% last year and Carson Forest down slightly in the same period due to regulation in Europe and in Australia. We've discontinued our licensing agreements with some partners in certain countries. But despite regulation, bank issuing partnerships continue to be an important growth opportunity, especially as we pursue high growth markets such as China, Africa and the Middle East. Going forward, we will leverage these relationships and put a greater focus on merchant acceptance. We want to move beyond focusing on just meeting the needs of the local card members in these countries.
We want to partner with these banks to also significantly drive coverage in their respective countries. Doing this enables us to meet the spending needs of even more customers, including inbound premium travelers and global corporations. We also continue to sign big merchants that are well known in their countries, some having thousands of locations. So here are some examples of major signings we had last year from around the world. And we signed these merchants based on feedback we received from customers in the local countries.
For instance, Indigo is a company in France that owns 300 parking lots and garages. This was a top merchant request from our corporate card members in France. Our CFE, which is Mexico's largest electric utility, it has more than 1100 locations. This was signed based on feedback from consumer and small business card members in Mexico. Each of these signings improves our perception of coverage in the respective countries.
They are also examples of how we leverage our integrated payments platform by addressing specific needs of card members to bring merchants on the network, which enables organic spend growth. So let me turn to merchant satisfaction, which remains a priority for us. As you may recall from last year, we conduct an annual survey of merchant satisfaction, which we send to merchants of all sizes: global, national, regional and small merchants. A key outcome from the survey is the Net Promoter Score, a well known metric that tracks customer satisfaction and loyalty. We've continued to improve our merchants' Net Promoter Score each year from when we began tracking merchant satisfaction in 2012.
In our most recent survey in 2017, we were up another 8 points globally. And there are many factors that drive merchant satisfaction. Our dedicated client managers are a key differentiator. Other networks and banks do not have the direct relationships with the breadth of merchants that we do. We use our data analytics and marketing expertise to promote merchants to our high spending card members, enabling them to grow their business.
Let me give you a brief example. Our recommendations platform allows us to make targeted and relevant merchant recommendations to individual card members based on the card members' location and spending. For example, I live in South Orange, New Jersey. When I log on to the Amex app on my phone or log into amex.com on my desktop, I receive information about nearby merchants based on my personal spending history. I eat out a fair amount.
I enjoy movies. I enjoy concerts. So here are some recommendations for merchants like the Village Trattoria and the South Orange Performing Arts Center. Over 15,000,000 people received local merchant recommendations in the past year. Now over the past few years, we've also rolled out new merchant friendly policies around processes like disputes and chargebacks.
These new policies align with the industry, making it easier for merchants to do business with us. Most recently, we announced this past December that we are eliminating the requirement for merchants to collect card member signatures for purchases at the point of sale globally. This will help provide a faster and simpler checkout experience for both card members and merchants and helps reduce merchants operating expenses associated with retaining signatures. The new policy takes effect next month in April. We are the only network to announce this policy globally.
We've also made our speed of pay faster for our smallest merchants in many countries, most recently in Hong Kong and in Singapore. Speed of pay is the time it takes American Express to pay the merchant after they've submitted charge to us. So many people might believe that our merchant relationships are strained given the merchant litigation we face in the U. S. And payments regulation around the world.
However, we remain steadfast in our commitment to improve our relationship with merchants in every country and with every merchant segment. We recognize that if we continue to strengthen our relationships, more merchants will warmly accept American Express cards. So let's now move on to the network infrastructure and how we are investing in it for the future. At the core of our integrated payments platform is the vastly complex technical infrastructure that connects all of our key partners globally and enables the authorization, clearing and settlement of their transactions. Global Consumer Services has issued more than 50,000,000 cards on the network.
Global Commercial Payments has more than 14,000,000 cards on the network. The 120 active bank partners that I mentioned earlier have issued more than 48,000,000 cards on the network. There are more than 18,000,000 accepting merchants on the network, and we have hundreds of acquirers globally that connect merchants to our network. The network infrastructure enables us to deliver products, capabilities, services and securities our customers have come to expect from us. We have enhanced and involved the network over the years.
However, to better capitalize on an increasingly more dynamic and digital environment, we are investing in its technical infrastructure to further differentiate American Express going into the future. This is a complex undertaking that we expect to complete in 2 to 3 years. When we are finished, we will have state of the art technology, advanced functionality, real time modular infrastructure and we will be fully data agnostic so we can process a wide variety of data formats that come into the network from our partners. Investing in the network will enable American Express to deliver unique value to merchants, acquirers, proprietary issuers and bank partners. We will deploy products, services and capabilities with greater speed.
We will innovate more rapidly in new and emerging payment spaces, including mobile wallets and QR codes and further support the digitization of the card Our infrastructure will have greater flexibility.
We will
be able to build once for many, meaning we will build a capability once and more easily deploy it to many countries at the same time. And you heard Paul talk about the estimated $19,000,000,000,000 opportunity in Global Commercial Payments. We will further deploy our ability to support a wide array of B2B payments, including some that are not card based. The network infrastructure is a tremendous asset and investing in it will position us and the company to continue winning into the future. You've now heard about all the components of our integrated payments platform, card members, merchants and the network infrastructure.
So let me showcase for you the power of the Integrated Payments platform. Let's talk about Hilton. Hilton is one of our most strategic partners. We have a very broad and deep relationship with them. Hilton is our 1st and longest co brand partnership beginning in 1995.
Today, we have both consumer and small business Hilton co brand cards. We've had a merchant relationship with Hilton since 1969. They accept our cards in 5,200 properties around the world. Hilton employees use American Express Corporate Cards. Our card members earn and redeem membership reward points for Hilton Stays and Hilton sells American Spreads prepaid and gift cards to their hotels.
Our Travel and Lifestyle Services team members book stays for consumers at Hilton Properties and our Global Business Travel joint venture book stays for corporate clients at Hilton Hotels. We manage our relationship with Hilton holistically, harnessing all of the assets across our diverse businesses to benefit both American Express and Hilton. We recently formed a new team called strategic partnerships to ensure that we have strong cross enterprise collaboration that most effectively capitalizes on our integrated payments platform. This approach led to a broad multifaceted and multiyear agreement with Hilton that we announced last June. As part of it, we renewed and expanded our Hilton U.
S. Co brand relationships. We are now the exclusive card issuer for Hilton Consumer and Small Business Credit Cards in the U. S. We brought this same strategic and holistic approach to our relationship with Marriott.
We announced a new multiyear agreement with them this past December. As part of it, we will continue our existing U. S. Starwood Preferred Guest co brand program and will be the provider of Marriott for Marriott of super premium consumer and small business co brand products in the U. S.
Going forward. Delta has been a merchant since 1964, and we've had a co brand program with them for the past 22 years. As part of our efforts to expand our relationship, we partner with Delta to provide unique benefits to our card members and their customers. For example, our Platinum and Centurion card members have access to Delta Sky Club Airport Lounges. We also have several relationships with Facebook.
They are a merchant, a corporate card customer. We are a large advertiser and sponsor on their platform. We're working across the company to bring together our data capabilities and marketing expertise with Facebook's platform to acquire and communicate with our customers in new and innovative ways. For instance, we are providing card members with new servicing experiences through Facebook's Messenger bot. The approach we now have to working with our most strategic partners demonstrates the power of our integrated payments platform as we bring unique assets together across the company to unlock growth opportunities for American Express and for our partners.
So let's now go to the discount rate. As a reminder, different factors may play a role positively or negatively impacting the discount rate. For example, we may have merchant specific negotiations that result in a lower discount rate. There may be strategic growth initiatives such as Ops Blue or our push towards parity in the U. S.
Our mix of spending impact the discount rate, sometimes positively, sometimes negatively, depending on the volume of spending we have in various industries and geographic markets. And I'll give you some visibility into our discount rate for 2018. I provided you an outlook for 2018 at the last year's forum. And at the time, I told you that we expected the declines in the discount rate to return to the range of our historical guidance, which meant for the full year of 2018, we expected the blended discount rate to decline approximately 2 to 3 basis points. But given what we know now, we are updating that outlook and believe that the blended discount rate will decline 5 to 6 basis points for the full year.
We have made specific and thoughtful decisions that are driving this decline. These decisions include negotiations with key strategic partners, which are already enabling revenue growth, our push towards parity in the U. S. And actions that are driving incremental B2B payments volume, which Paul mentioned earlier. These decisions have opened opportunities for greater merchant acceptance and more spending volume on the network.
We take a much broader view of the business and just the trend of the discount rate. When you look at the company's discount revenue growth over the last 2 years by quarter, we have averaged 5.3% growth and grew 7% in the most recent quarter. This reflects strong momentum across each of our businesses and our company combined. As Steve said earlier, we have a spend centric model and that spending can enable lending opportunities. So if you then add the interest income from our lending activities along with the fees generated from our cards, the company's revenue growth over the last 2 years averaged 6.5% growth and grew 9% in the last quarter.
The reality of our business is that at times the discount rate is a lever that we use to drive expanded coverage and to unlock profitable revenue growth. With our global differentiated business model, we are very focused on driving profitable long term revenue growth. We're confident the actions we're taking are the right ones to grow American Express, and we're comfortable with the revenue expectations we've provided for 2018, which Jeff will tell you about in just a moment. Just in summary, we're making strong progress. We're significantly increasing merchant coverage globally to strengthen our integrated payments platform.
We are investing in our network infrastructure to provide unique value to merchants, acquirers, proprietary issuers and bank partners, and we're capitalizing on the power of our integrated payments platform. Thank you. And now I'll turn it over to Jeff.
Thank you, Henry. So I want to start by thanking everyone, including the people on the webcast for listening, but I particularly want to thank those of you still sitting here with us in New York who are looking out the window for those of you not here at the wind and the snow whipping past
the windows. So thank you
for being here. So my role is to try to take what you've heard over the last 2 hours or so and put it into a financial context. And as I do that, I'll talk a little bit about 2018 and I'll talk a little bit about what we expect beyond 2018. But before I get to that, I actually want to start where Steve started. And I hope at this point of the afternoon that each of you, as you think about Steve's 3 takeaways, have your own view of the many different ways in which we see our business model as being very differentiated.
As I think about the last two hours, I'm particularly struck by Doug's discussion about our innovative and differentiated value propositions on the consumer side that give us an unmatched ability to generate fee revenue. I'm struck by Paul's discussion of the way we use the integrated payments platform to drive B2B payment volume in a way that is very difficult for anybody else to match. And perhaps I'm most struck, Anre, by your example of Hilton and the full breadth of the relationship that we have with Hilton because of the many assets we have to bear. So we really believe in the differentiated business model and the way it positions us to win. Now I hope that I don't have to convince anybody in this room that we're in a fabulous industry with a great runway for growth.
I suspect that's why most of you cover the payments execution that will deliver steady and consistent revenue and earnings per share growth. And as we do that, it's based on the same simple financial model we've had for many, many years. We're in great growth businesses. We have a steady ability to get operating expense leverage and we have tremendous capital strength. And it's that simple financial model that historically, take away the last couple of years of repositioning the company, have a remarkable track record of producing steady earnings per share growth in almost economic environment other than the most extreme financial downturns, nineeleven, the great financial crisis.
And it's that historical track record that we believe we're right back on track with. And our confidence in that is really heightened by the kind of momentum that we exited 2017 with, that Steve started the day by talking about, and the momentum that we have as we enter 2018. So that's the financial overview in many ways of the company's story. But before I get to 2018, let me go to what I'm sure really brought those of you here in the auditorium with us downtown in the snowstorm to hear about and that's accounting and revenue recognition. So we all know that January 1, we, like all U.
S. Companies, have adopted a new revenue recognition standard. And I would tell you for us, that will produce no material change in our earnings, no material change in our revenue growth rates. It will, however, for us drive some material changes to P and L geography. And I think we are probably unusual in Financial Services for the changes you will see, so I wanted to talk about them for just a minute.
So what you see on the slide behind me, or for those of you looking at the webcast, are the 2017 numbers as we reported them a few weeks ago. There are really two changes that we're making that you will see beginning with the Q1 of 2018. And there are 2 kinds of items that we formally reported as contra revenue that we're going to move down to expense lines. The first of those are our cash back rewards, which we formally reported as a contra revenue. And beginning in the Q1, we will instead put them down into the card member rewards line, so you will have one line item with all of the reward costs that we incur as a company.
The second change we will make is that there are certain kinds of payments to partners that we make that help drive revenue that we historically treated as contra revenues. Beginning in Q1, we will instead move them down to an expense line that we will begin to call marketing and business development. And I'll go into a little bit more detail a little later about what's in that line. When you put all that together, it simply adds to our revenues and it adds to our expenses by the same amount. What it does do, I think, is give you a little bit greater disclosure, a little more transparency into some of the drivers of our business.
Now in the next day or 2, we will file an 8 ks and we will give you 2016 2017 by quarter, historically recast using the new methodology, so you have like for like comparisons you can make. And overall, I hope you will find this a helpful change with a little bit of enhanced disclosure, a little bit more transparency. So that's enough on accounting. Why don't we talk about our view of 2018? And of course, it has to start with a view of what's the environment in which we find ourselves.
So let's first talk about growth. So as you know, we don't try to make our own economic forecast. We really build our plans around the consensus. And the consensus today for economic growth is a little bit of a mixed bag for us. Actually, while growth in the U.
S. Is currently forecast to be up year over year, and some of our other key markets outside the U. S. Growth is forecast to be a little bit weaker in the Eurozone, the UK, Canada, Japan. Now certainly the U.
S. Is our biggest market. So stronger growth in the U. S. Is certainly a good thing for us.
Obviously, we'll have to see how the year plays out. The Tax Act is a very good thing for the economy from our perspective, and there's a lot of other things going on in the political realm that we'll just kind of have to watch and see what the impact of them is. But a stronger U. S. Economy is good for us.
For us though, most of you know that there is a modest offset for us and that a stronger economy is generally accompanied by steadily rising rates and the latest consensus view of interest rates in the U. S. Is for 3 or 4, depending on which view you want to look at, 3 or 4 rate rises as we go through the year. Now as most of you know, we are a liability sensitive company and that stems from the spend and fee centric nature of our business model. And it stems from the fact that our large charge card franchise gives us a large chunk of receivables that are not interest bearing.
As a result, as we think about how to fund the company, we try to fund the company in a way that keeps our exposure to rising rates in a very manageable range. And each year in our 10 ks, we give you a disclosure where we say if overnight, there are 100 basis point increase in rates over the ensuing 12 months, that would cost us about 167 $1,000,000 Now obviously, rates don't generally go up 100 basis points overnight. And obviously, generally, rates go up when the economy is strong, which is a good thing for us. So you put all those things together and that's why we see our exposure to rising rates as being very manageable. Now how do we manage it?
How do we get there? Well, let me remind you about our philosophy for funding the company. So we believe we want to remain active in 3 different types of funding markets. So we are active in deposits. We're active in the asset backed security market and we're active in the unsecured market.
And we think remaining active in all three markets is a good long term strategy from a safety and soundness perspective. In a rising rate environment though, the cheapest source of funding we have generally is the high yield savings or online deposit program that we have that I know many of you tend to focus on. And the amount of funding in that category has been around $30,000,000,000 for the last few years. In 2018, I'd expect that number to begin to grow for the first time in the next couple of or first time in a couple of years, and
I'd expect it to grow
for the next couple as well, facilitated by some changes we're making in the U. S. Where we're consolidating our 2 U. S. Banks into 1 bank.
As it grows, I know many of you also spend a lot of time thinking about what's the beta on these kinds of accounts. And as we've previously disclosed, if you look at what's happened over the course of the 5 interest rate increases the Fed has so far done, the beta over that time period is about 0.4 on our online savings program. If you look at the chart though, you do see that the beta of late has certainly gone up a little bit. For our own planning purposes and as we think about managing our interest interest rate exposure to our target level going forward, we assume a beta on these accounts of about 0.7. So that's interest rates.
We have to make a couple other assumptions about the environment. Current consensus is that unemployment rates stay pretty steady with what they are. We assume foreign exchange rates essentially stay at current levels. And beyond the things that Andre talked about in Australia and Europe that are impacting our G and S business, we don't assume any new or dramatic regulatory changes. So based on that context, back in January, we provided earnings per share guidance for the year of $6.90 to $7.30 And on that January earnings call, we took you through a range of other expectations that go along with that EPS guidance that are laid out on the slide here.
And what I'd like to do is give you a little bit more context around each of these, starting with billings and loan growth. So as you heard a lot about in the last couple of hours, we saw a really nice steady expansion as we went through 2017 in our billings momentum as we grew from 7% to 9%. And we fully expect that momentum to continue in 2018 with our confidence in that heightened by the breadth of where that strength was coming from. All of our geographies across the world, both the consumer and commercial side of the business, have shown steadily accelerating and now strong volume growth. The one exception in 2018 is the one Anre already mentioned, which is because of regulation in Australia and the European Union, we do expect the network volumes to be much more modest in terms of growth in 2018.
Turning to loans, 2017 was another in a string of years of us steadily growing faster than the industry while continuing to have best in class credit metrics. We expect that to continue in 2018, and we see a long runway
from growth
well beyond 2018. And our confidence here is again reinforced by the breadth. While the U. S. Consumer business still provides the largest portion of our current loan book, interestingly enough, you actually see higher growth rates in 2017 on a percentage basis, albeit on a small base, in the International Consumer and Commercial segments, which brings me to the 3rd component of our revenues, fees and other revenues.
And the largest single portion of this category is our card fee revenue. I would say we are particularly pleased by the steady growth we've seen on card fees right in the face of the competitive environment we face everywhere in the world, but particularly in the U. S. Consumer marketplace. It's a real testament to the differentiated value propositions we have in the marketplace because nobody else is able to generate the kind of fee revenue that we generate because of the value that consumers place on the products and the value propositions we have.
So all of those things together are what drove this steady acceleration in revenue growth that we experienced over the last couple of years of repositioning the company. And that is what gives us confidence in our ability to sustain the momentum, heightened again by the breadth of where the revenue growth is coming from, discount revenue, card fees, net interest income, all growing really nicely. And with our confidence further heightened by the fact that 80% of our revenues, if you look at Q4, came from the spend and fee aspects of our model. We put all that together and our revenue expectation that we talked about in January, 7% to 8% growth in 2018 is one we're very comfortable with. So let's talk about provision.
So the calculation of the provision for American Express is a very complex project. We operate in many different geographies around the globe. We have a commercial business and a consumer business. We have charge card products and we have lending products. We have many different regulators who heavily oversee our provision process in addition to your normal accounting oversight.
And as I talk to many of the people in this room and on the webcast, I will make the observation that you all tend to look at and model provision in many, many different ways. So in the face of all that complexity and given all the focus these days on provision, we decided to try to make it really easy in 2018 and just give you the answer, right? And so we expect provision to be up in 2018 about like it was up in 2017 on a percentage basis. That's mid-thirty percent range. Drivers of that are exactly what the drivers were in 2017, which is we have really nice growth that we've had for years now in both charge and lending.
We have gone through a real big mix change where we have a lot less co brand lending and more proprietary lending, and that comes with higher yields and a little higher write off rates, produces really good economics, and that switch also leaves us with a good chunk of loans that are going through a seasoning process. I stood on this stage 2 years ago and pointed out that those were all the things we were going to do. And really 2 years on, it's all going exactly like we told you 2 years ago. This slide just shows you, remember, we do have a real mix of charge and lending. I would point out that our charge write off rates didn't move at all in 2017.
We view that as one just very interesting economic indicator about this status of our card member base. And our lending write off rates began to drift up in 2017. It was 2 years ago that I told you they'd start to drift up. They actually did not in 2016. But they did start to drift up as we expected because of the mix changes in the seasoning in 2017, and I'd expect that to continue in 2018.
But it's doing so with really, really good margins, right? So Doug showed you a consumer only version of this slide earlier. This is for the company overall, looks at our net credit margin over a long period. And you see really nice steady expansion as we have driven yields up while keeping best in class credit metrics. And in fact, if you step back and think overall about our ability to generate what I'll call customer margins, so revenue less rewards and write offs, per dollar of assets we put on the books, I would suggest, once again, we have a highly differentiated business model versus the competition.
So how do we do that? How do we generate the revenue growth? We have to make very thoughtful and focused investments. Back in January, I talked a little bit about the fact that the very successful renewals of a couple of big co brand agreements, which provide a great platform for longer term growth, do represent about a $200,000,000 headwind to 2018 earnings. And I also talked back on the January call about the fact that in light of all the aspects or impact of the Tax Act, we decided to add about $200,000,000 more to our investments in 2018 than we had originally planned.
Now to put those two numbers into context though, those $200,000,000 numbers, I'd remind you that if you look at 2017, our overall customer engagement spending was almost $16,000,000,000 And I would point out the numbers I'm showing you on this slide are now recast for the new way that we will be reporting starting in Q1 with new rev rec. And if you think about 2018, I'd make a couple observations. So first of all, the smallest component of the things we do to create customer engagement is card member services, I would expect that again in 2018 to be the highest percentage growth area. And if you think about what you've heard over the last couple of hours, that shouldn't surprise you because that's where a lot of the things we do that we believe are particularly driving differentiated value for our card members sit, and we think they're particularly difficult for others to replicate. When you look at rewards, now that we have fully lapped the rewards impact of the platinum changes we made in the U.
S. Back in 2016 2017, I actually expect rewards in 2018 to begin once again to track much more consistently with the billings on the relevant products. And that then brings us to the 3rd line, marketing and business development. And because this is the line where there are some changes because of rev rec, let me remind you a little bit what's in that. So there's really 2 components to this line.
The first is what I will call essentially the traditional or historical marketing and promotional line. There's some minor changes, but it's mostly that line. And if you look at 20 seventeen, it's $3,400,000,000 a little more than half that we spent acquiring new customers, about a quarter driving more engagement from existing customers with the remainder going to merchant and broader brand advertising. And when you think about this line item in 2018 beyond, I'd really point you back to the part of Doug's presentation where he talked about our relentless focus on driving more efficiency every year, particularly in our customer acquisition efforts. And as a result, I would expect growth in this part of the marketing and business development line to be pretty modest because we think we can every year drive a little more growth with very few additional dollars.
The other part of this line is the new part where certain things that are payments to partners that we formally treated as contra revenues, we are moving down into this line, marketing and business development. And there's really 3 big components of this. The first would be incentives we pay mostly to larger corporate clients. The second would be payments we make to GNS partner banks, who when their cards that they issue are swiped at an Amex managed merchant, we're in effect keeping a network like fee and paying the rest of the merchant discount rate back to the GNS issuer. And the 3rd component of this are certain payments we make to co brand partners and a few other things.
In 2018, the main change I'd expect to see here is because of the successful renegotiation of a couple of the large co brand agreements that I referenced earlier, I would expect the co brand payments part of this in 2018 to go up a little bit more significantly than the other components. Since we're talking about co brands, I also wanted to update you on our view of where cobrand sits in our overall business mix. So if you look at 2017 year end, about 36% of our loan balances came from various co brand partnerships, 16% of our billings. For those of you with a really good memory, you will remember that, boy, those numbers are down a lot from where they were a few years ago. If you go back a couple of years ago, almost 50% of our loans at one point came from our cobrand partnerships and over 20% of our billings.
So we feel good about that mix change. And if you look at who makes up those remaining co brand partners, 1st and foremost, Delta is certainly, as they have been for years, our largest, most important, most intertwined and most strategic partner. Andre talked you through how intertwined we are with Hilton. We could have done a similar slide for you with Delta that would have even had more interconnections. And it's a great partnership with both of us working to drive business for each other.
As we have in previous years, we've broken out what's now Marriott, formerly SPG. And then for the first time, we've broken out Hilton and British Airways because as they have continued to grow, they've both tripped over the 1% of our billings threshold. Beyond that, you have over 50 cobrand partnerships that we have around the world that account for the remainder of this balance. And as you think about this portfolio, I would really emphasize the point that what's mostly left here are travel and entertainment oriented co brand relationships, where we have very multifaceted relationships that we think create great stickiness and create value for both partners. So that's investments.
If you step back one more time and think about, well, what are really across the almost $16,000,000,000 that we spent in 2017, it will be a little more in 2018, what are the things that perhaps are most important in driving growth in 2018 beyond? There's obviously lots and lots of things we do. But reflecting on the last couple of hours, I would particularly point you to the focus areas of, in Doug's world, the premium customers and partnerships, our digital efforts and lending. In Paul's commercial world, I'd point you to the B2B payments work we're doing, the focus on small and midsized enterprises and business financing. And of course, in continued efforts around the globe around merchant coverage and the network infrastructure.
So the last couple of things we have to do as we think about the guidance we've given you for 2018 is look at the tax rate. So we continue to expect that our tax rate, given the new tax act, will be about 22%. And as we announced in January, because of the Tax Act charge we took in Q4, we are suspending our share buyback for the first half of twenty eighteen with a resumption in the Q3 of 2018. And I'm going to come back to capital and CCAR in just a minute. So it's now March 7, and so we have 2 months of volume data, 1 month of final financial data, and we're in the process of closing the books on February.
And I would say that we're off to a really good start in Q1. On the billings and loan side, the momentum with which we exited 2017 has continued. While it's only March 7 and there's lots of uncertainty in the economic environment, I would suggest, for the rest of the year, Gosh, that bodes well in terms of what we've seen thus far in the U. S. Economy in particular, but really around the globe.
That kind of billings and loan momentum certainly bodes well for a continuation of the kind of revenue growth momentum that we exited Q4 with. Rewards performing exactly as I would have expected, roughly in line with billings. And provision is on here because I just want to be clear, there's nothing that is surprising us about the provision. It's performing as we would have expected, as we've expected for a long time. I would remind you that just due to the first began is exactly as we first began talking about last month.
So overall, off to a good start in Q1 and that makes us very confident in the EPS guidance that we have provided for the full year. So what happens beyond 2018? We have a simple financial model, great growth businesses, steady operating expense leverage, capital strength and that's what's produced the steady revenue and earnings per share growth that we're historically known for. And I hope before we go to Q and A that you have a clear view of the breadth of the very diverse revenue growth opportunities we have. And I hope that nobody has any doubt about our ability to get steady operating expense leverage as we grow the company.
We have a long track record of doing this, and we have a long runway to continue to do it. And we have a long track record of being committed to deploying capital to generate value for shareholders. A few last comments here. First, no one should have any doubt about our commitment to using capital to generate value for shareholders. I would point out we are the only U.
S. Bank that has twice in the CCAR process used the Mulligan process and had to be told by the Fed that we originally asked for too large a return of capital. So we're committed to it. 2nd point I would make is the Tax Act is good for the company, it's good for the economy and it will allow us to return more capital over the next few years to shareholders than we otherwise would have been. It did drive a Q4 our suspension of the share repurchase for the first half of twenty eighteen will substantially rebuild our capital levels.
So we will go into CCAR 2018 with our capital levels substantially rebuilt. So as you think about CCAR 2018, which we're right in the middle of, I would just make 2 observations. One is that the continued asset growth that we are doing as a company will require us each year to set aside some modest amount of capital to support that asset growth. And the second reminder I would give you is the Fed every year evolves this process in ways that are sometimes not terribly transparent to us. And it is transparent that this year they have made the severe scenario even more severe than it has been in previous years.
And just in the last week, they put out some new guidance that we're all trying to understand about some changes in how they're going to model many things, including in particular credit card losses. So we're working through all that. But no one should have any doubt about our commitment to using capital to generate value and about the impact of the Tax Act in the long term, which will be very positive. So let me conclude and then we'll go to Q and A. We have a highly differentiated model.
We are in a fabulous industry with a long runway for growth. And we are very committed as a management team to making the choices and driving the execution that will return us to the kind of steady and consistent revenue and earnings growth that our shareholders have historically come to expect from us. So with that, I'm going to invite my colleagues back on the stage and we're going to do some Q and A. And Toby, we also have this year a new feature given the snowstorm of people with some ability to e mail in questions. So we may have a few e mail questions in addition to the questions from folks live here in the room.
Thank you. So who would like to start? Steve, he's an MC.
Let's start right over here.
Hi, it's Don Fandetti from Wells. So I guess on the merchant discount rate, I get it, it's down a little bit more because of some specific renegotiations. But that's always the case, it seems like. That's part of the business. Can you give us a little more color on what might have driven that?
Like was it a big e commerce player? Talk a little bit about that. And then also, what does it mean going forward? Are we to expect sort of 2 to 3 basis points? Or is this the new 2 to 3 basis points?
So let me start and then I'll pass it over to Andre. I think as we look at the overall model that we have, the most important thing for us is to make sure that we have outlets for our card members to spend. That's the most important thing. And whatever we need to do to do that, we're going to do. And let me just put that in context for you.
When you look at the 3 things that Anre put up, one is a commitment to parity coverage. So we made the commitment to OpBlue. And as Andre went through, we talked about other industries, whether it was health care and government and utilities, which are a little harder to get into, but that gets to overall parity coverage. B2B, when you look at it and you look at the data that Paul put up, we got 3% growth T and E from a commercial perspective, 11% B2B growth. It's a very different dynamic sort of B2B spending.
And then there are specific deals that we will do from time to time to support the overall integrated model. So as I look at it, I look at it from a perspective of we're growing discount rate revenue because we're getting more and more spend because we're getting more and more locations, whether that be B2B locations or whether that be more parity coverage, either in the U. S. Or in international. And when we have opportunities to do strategic deals with partners, we will do those strategic deals with partners.
So is the 5% to 6% the new norm or is it 2% to 3%? That may go year to year depending on the opportunities that present themselves.
Okay. Jeff, on credit, a lot of the card issuers as I mean, you're right in the middle of sort of your, seasoning of replacing the Costco loans or you're sort of entering it depending on how you look at it. A lot of card issuers have sort of missed the mark and underestimated the trajectory of losses over the last year and a half where they've had to just sort of raise their hand and say it's a little higher. What's your comfort level? Do you feel like you've built in enough cushion on your provision guidance?
And could you talk a little bit about where charge offs would head on a year over year basis in 2018?
Well, let me start and then Doug, you may want to add some color. We obviously are very confident in the guidance we've given you or the comment we made or the expectations we've given you on provision or we wouldn't have done it. And I tried, Don, to specifically point out that we first started telling you what was going to happen 2 years ago. We actually started out too conservative because it didn't happen as quickly as we thought it would. It's now happening exactly as we first started talking about 2 years ago.
And we, as we sit here today, think we are very comfortably tracking within the range of everything we would have expected given the many, many different levers that are in fact being pulled across lots of different products and lots of different geographies. So we feel good about what we said, and we feel even better about all of the economic trade offs that we're making here. So let me just add a couple of things.
First of all, we do all our underwriting through the cycle. We assume there's going to be a credit wave. And occasionally, we'll make slight adjustments in terms of how far off we think that credit wave is from today. I think one of the benefits we have and we talk about it a lot because we really believe in it is if you look at our loan growth, the math goes something like this. We have 11% growth in balances from existing members.
We have, say, 7% growth from new customers we're acquiring and then we lose about 5% through attrition, both voluntary and credit. That 11%, we feel we have a really tight confidence interval around, right? So if there's a portion of our growth that's more subject to those kind of errors you've seen other issuers make, it's going to be in that 7% that's new acquisition. And look, we're paying a lot of attention to performance there and we're trying to stay out ahead of it, whether it's in the way we price and the way we offer interest free periods and incentives to manage margin or the way we adjust underwriting as we see stress start to emerge. And you'll have heard other issuers say, and it's true, that in certain near prime segments and the very lower end of prime, as consumers have relevered, you've seen some default rates that have increased within FICO bands there, right?
And I think most issuers are trying to stay ahead of that. Part of our benefit or advantage is we're less dependent on new customer acquisition and we're less concentrated in those segments, but we're vigilant about tracking it. Steve Percoco, Lark Research. You guys have had a financial proposition essentially as a growth stock for over 2 decades now, low single digit, double digit earnings growth, stock buybacks, which fuel even higher EPS growth. You had that worked well during the go go years.
Obviously, with the Costco problem that you had, you backed away from it, but you're going back to that now, essentially, stepping back a little bit in this first half. I just question, given the change in the environment, and I understand what you're saying about the potential to penetrate more. But consumer growth is lower since then. I remember coming 5 years ago where the management prided itself in saying that they stayed away from loans. Now you're going all in on loans.
And I question whether you're really geared up for doing working capital loans successfully. So my question is why haven't you shifted to a different value proposition? Why don't you consider going with a higher dividend payout, a lower growth model? At this point in time, you're not getting the PE multiple today that you did back 10 or 15 years ago, which says to me that investors have doubts about your ability to sustain this model, wouldn't going to a less aggressive financial model give you the ability to pull back on your lending, maybe take less risk and actually get you a higher multiple in the end?
So there's a lot there. So let me try and talk to you from a strategic perspective and from a customer perspective, which then then flows into sort of a financial perspective. When you look at sort of where we're what our customers need and what we're trying to do, and let's take the commercial business because you brought the commercial business and as well as the consumer business. Let's start with the commercial business. When you look at our products, whether they be the charge card product or whether they be the credit card products that we offer, it's a form of working capital.
It absolutely is a form of working capital. And when you look at the charge card product and you look at the plum product that we have, our charge card products probably get paid anywhere from 30 to 45 days, Plum card gets paid to 60. The move into working capital is a 90 day sort of payment.
It's a deferred we look at
it as deferred payment, it's an extra 30 days. And if you remember from the video, we launched it in 2016. We've been very prudent and very judicious and very circumspect about how we go about this. But the reality is, is our customers want a wider variety of products and services. And we need to be able to, in a judicious way, be able to provide those products and services, whether they be cross border payments, which they need, whether they be some working capital, whether that be merchant financing.
And so when you look at our penetration within SME, whether that's penetration in the U. S. Or penetration in international, we want to be able to offer them that suite of services. But you also have to realize is that where we're looking at working capital is exactly to those customers that we already have. We're not using as a lead generation.
What we're using as a lead generation is our existing card products, which we really know how to do well. And as you have all that data and as you manage those customers, you're able to understand just what they can and cannot do. So that's the customer side of it, and I believe that's from a growth perspective. When you look at the consumer business, 59% of the loans that we generated in the Q4 were to existing customers. Organic growth almost 11%, as Doug just mentioned, to existing customers that we had.
These are customers where we have 45% to 50% of their wallet, but half of their spending. And as we talked about early on about evolving consumer needs, there's not a lot of desire to go to multiple places to get financial necessarily financial services products. And I don't want my customers going to my competitors to get loans when I already have half their spending as it is today. So if you want to take that through from a financial perspective, it probably all plays out exactly as you said it would play out. But the question is, would you keep the spending that you had?
Would you then keep the lending that you had? And does your customer stay with you? And ultimately, what we're about is meeting the customer needs and doing that in the most financially responsible way that we can. And so we've been very thoughtful about the strategy. We've been very thoughtful about the coverage, which gets right back to the discount rate to invest in areas so that our customers can actually continue to spend.
So I don't see us moving away from that strategy because it really is driven from the top by what the customers what our customers really need and how we're going to serve customers best.
I would just pile on really quickly and say, it's something of a false choice to say you want to be in the payments business, certainly in U. S. Consumer, but you don't want to be in the lending business. Our customers, they account their wallets account for about onethree of all U. S.
Consumer credit card spend and about onethree of all U. S. Consumer credit card borrowing. So they are borrowing roughly on par with the way they're spending. They're just not doing as much of it from us.
And increasingly, we have a saying around here, which is we're in the lending business because our customers are in the borrowing business on payment products, and we feel like we need to meet those needs or we're inviting competitors into a place in their wallet where we don't want them. We also say there's a competitive imperative, which is the intense competition around services and rewards make the lending revenues very important to funding a superior value proposition, and our whole model is predicated on that.
And the only financial comments I'd add are the spend and fee portions of our revenues are 80% of our revenues, but spend, fee and lender are all inextricably intertwined, to Doug and Steve's point. That model generated Q4 revenue growth of 9%, which I would suggest is a great number by the standards of almost any industry. So we have a strong view in the growth prospects of this company. From a financial policy perspective, we pay a dividend today that is at 20% to 25% payout ratio. Today, we are very comfortable with that payout ratio, so you should expect us to stay in that range.
The dividend will inch up a little bit as earnings go up. But I wouldn't envision, given the way we view the growth prospects today, any significant deviation in that approach.
Bill Carcache with Nomura. I had a follow-up question on the MDR. Can you talk a little bit about how much of a debate exists inside of American Express regarding how to manage the interplay between going after incremental billings and volume growth versus perhaps compromising a little bit more on the MDR. It seems that so long as your billings are growing at a faster rate than the rate of decline in your MDR, you're going to drive incremental revenue growth. And so to what extent perhaps has there been a change there?
And maybe just a little bit of color on that.
I won't say that that's a good question, Bill. I wouldn't say that's a debate. I would say discussion. We always are discussing ways to grow the company profitably, and that's what we're committed to. Sometimes that will be through card fees, sometimes that will be through lending, sometimes that's through something spending related, sometimes it's through a partnership, sometimes it's through greater coverage, sometimes it's driving B2B.
Those are all examples that I gave and we do discuss it because we meet and we talk often as a leadership team about what's the best way to invest and to grow the company. We don't and my team does not obsess over the discount rate trend alone. We focus a lot more on the discount revenue trend for the company and the revenue growth overall. That's what we focus on. So we do talk about different ways in which we can grow the company.
As somebody that sits on the issuing side, I mean, I would say, there's no debate whatsoever when that compression comes from us pursuing new segments that we previously didn't have access to, whether it's B2B, whether it's small merchant coverage, whether it's new industries that Anre's team is penetrating. I think it's also it's obviously a little bit more painful when the compression is on business you believe that you already have. But one of the challenges we talk a lot about the lending adjunct to the consumer business, when you lose $1 of billings, you don't just lose the $2.50 of discount revenue, you lose the financing opportunity against that and it erodes the stickiness of the customer relationship overall. So I would say, as a team, maniacal focus on that single metric of discount rate.
Follow-up.
Can you guys talk a little bit about the I apologize. The EPS growth historically that you guys gave on average and over time guidance, you kind of there was a unique period during the post Costco era where there were a lot of moving parts and you gave a little bit more specific guidance. And then now you kind of Jeff, you showed the slide where you guys have all of the moving parts to the business model that generate EPS growth, but there was no specific guidance. Was that intentional? Or is it still reasonable to believe that, that kind of 10% plus is still possible?
I think that's intentional. Our view is we are very comfortable with delivering steady and consistent growth over time. We put a range out there, and our intention is to provide annual guidance moving forward based upon the economic and competitive environments. I mean my objective is to manage this company for the medium to the long term, much like Ken did. And to do that, you may make decisions in a given year that may not be consistent with your expectations are.
So I'd rather manage your expectations on an annual basis on an ongoing basis like that. Go right back here. Right behind you, Jim.
Thanks. Mark DeVries from Barclays. Now that we've had a little bit more time to reflect on the implications of tax reform on your business, would be interested in hearing updated thoughts on what you think it could mean in terms of billings, demand for financing on the consumer side and for your credit as well?
So I'll let everybody sort of let Jeff and
Doug Maybe I'll make the macro comments and let these guys chime in. I mean, gosh, it's March 7. I made the observation earlier that we're certainly off to a good start in terms of billings and loan volumes. Though as I've said for some time, when you look at the places or the parts of the company that are doing well, they're generally places where we can say, there's something we did, and I see a strong result that directly stems from an action or a change in product or policy that we made. So certainly, the economy is helping us.
I just think it's a little early, Mark, to very definitively comment on just how much the Tax Act may be driving differential behavior, but I'll let you guys comment.
I mean, I believe it is going to help and it is helping somewhat right now. I believe that. And I expect it will translate into greater consumer confidence and spend levels within our segment. That's where you would expect to see it translate. We're a spend to lend provider, so you would expect that to flow through into loan growth at some proportion.
And I would expect that it would have some type of salutary effect on near term delinquencies and write offs, although that's a supposition that needs to play through the model. We haven't had time, as Jeff said, to see that yet.
And one place I would add is that given that the Tax Act had a big benefit in the tax rate for many of the corporations that are U. S.-based and given that we serve more than half of the Fortune 500 and we're the number one corporate and small business issuer in the United States, it's we're watching to see if that spending does translate into more SME and more corporate spending, and we're watching it closely. It's early. It's only been a few weeks since the decision was made and announced.
Himain Huber, Bank of America asking on behalf of bondholders here, Jeff. And again, good to talk to you again from Pollard, your MacKesson there. So when we look at the senior holdco issuance needs, so basically, let me ask you across the cap structure. Senior Holdco, your issuances have outpaced maturity. So how do you see the needs this year?
Sub issuance Tier 2 looks okay, but do you think it's opportunistic? 80, 110 basis points Q4 2017, what are the thoughts around that? What's the optimal level there? And then number 4 is redemptions. Do you see an opportunity to do liability management?
Well, let me maybe stay fairly high level because I'll go back to the idea that when we look at our funding stack, we think it's really important to be active in all three of our main markets: the unsecured, asset backed and deposit growth market. And if you think about the comments I made a few minutes ago, we are going to be growing for the first time in a number of years the high yield savings program. And that is a really good thing and attractive thing to do in a rising rate environment. What it does mean is that that's where you're going to see most of the growth for a little while. And yet, we still want to be true to our desire to remain active in the other two markets.
So other than that shift to a little bit more in the high yield savings area, I wouldn't expect to see a lot of shift in the other two markets. And to some extent, because we want to be active, because we want to keep our mix fairly similar, we're not going to make very timing dependent decisions necessarily on mix because we're going to average in over time across all three of those markets.
It's Jamie from Susquehanna. Thanks for the incremental disclosures. Steve, in your prepared remarks, you said something, I'm paraphrasing, that you needed to prepare the network for new payment types and you referenced the WeChat and the Alipay. Andre, you said something similar. You said some new you said something that affects your future transactions may not be on card, I think was the language.
What are you talking about there?
So yes, well, it's good that we said something similar, which is a good thing. All that preparation work. I think as you look at sort of and let's talk about B2B for a minute. When you look at sort of procurement spending and how that gets done today, you may not have the card economics that you have within that construct. You may not have incentive payments that get done.
You may not have a discount rate. You may have a transaction fee. You may be going from a bank account to a bank account. It may be a cross border payment. So I think when you think about our network, our network has been viewed as a network that is really card only.
But when you look at it, it can be geared to handle more types of payment transactions. And so and that's what we will do because I think as more and more cash and check transactions get become electronic, they're all not going to become hard economic transactions. But it doesn't mean you can't use that infrastructure because when you think about that infrastructure, it's a routing infrastructure, it's a distributed infrastructure that has various points around the globe. And you can use that to route different types of transactions. So that's really what we're talking about.
And if you look at what's happened, whether it's Zelle, whether it's Venmo, whether it's WeChat, person to person payments, things of that nature, I think and Doug made this point a minute ago, if you're in the payments business, you're obviously in the lending business, but you're also going to be as as payments continue to evolve, you're going to be in the transaction routing business as well. So that's what we're doing. And how that affects our overall economics, how that impacts our scale, we're not 100% sure, but I want to get ready now for that. I don't want to get ready when it happens. Just wanted to ask one follow-up.
Doug, you had this slide, Slide 36. You don't have to look at it. You know what I'm talking about. It's a self-service slide.
Yes.
And I was hoping, Jeff, you might be able to translate this into financials. So it's showing a pretty significant trend that the customer is serving themselves. Presumably, they don't need an intermediary in that. How does that show up in the efficiency ratio?
Well, I would just go back to the general comment that maybe we didn't dwell on because we hope it's self evident. We have a tremendous track record of seeing very little growth in the operating costs of the company as revenues grow. And it's because we operate a scale business, because technology gets cheaper every year and because every year, our merchants and our card members want to interact with us more digitally, and we're getting more and more focused and better at enabling them to do so. So it's really part of what has allowed us for a decade to control costs, And we see it as one of the key levers that for the next decade is going
to apply. Yes. For a number of years, when I would do these Investor Days in one of my old roles, we talked about sort of how we created operating leverage from whether it's technology, whether it's customer service, whether it's credit administration, business services and so forth. That hasn't changed. It's become a way that we do business.
And so we're doing more and more transactions. Our cost to run those transactions are going down, and we're taking operating expenses that we had and investing those in other value generating activities. And just for an example, last year, we used our customer service representatives to do more selling of existing products and services to existing customers on inbound or redirected from web. So that's a big component of our strategy going forward. It has been part of it, at least for the last 10 years as we once we globalized and consolidated and got scale out of our operating infrastructure.
Jamie, we had 9 percentage points of shift from phone based or intermediated servicing to self serve over a 12 quarter period. That still left us with the majority of customers serving via phone, right? And we think if you look at our acquisition volumes and their propensity to self serve, If you look at the fact that about 30% of our phone calls, the customer actually tried to self serve before they called us. And either the functionality was not there or they couldn't understand how to access it. You look at that factor and you look at chat, right, which was sort of a throwaway comment there, but both web chat as well as mobile chat, As we get better at engaging customers with that and using AI to resolve those chats with no human engagement, there's a lot of room to run there.
We'll go right here and then we'll come over here.
Hi, thanks. Chris Brenner from Buckingham.
I have two questions.
I'm going to start with the follow-up on the working capital product, so larger question around the commercial lending growth. I'm seeing $11,000,000,000 at year end in that segment in terms of loans. I think most of that is card and correct me if I'm wrong, but if you could just talk about how long you've been testing working capital, what kind of loss rates you're expecting? This seems like a product that has with a $750,000 potential line, is it a little bit eye popping? So just give a little more comfort on what kind of loss rates you're targeting there and how comfortable you are that both that business, the merchant financing business and all the other products you're layering on aren't growing too fast.
Yes. I'd say that it's probably only about 15% of our overall just checking with Jeff, but I think it's about 15% of our overall of the loans. And it is growing at a rate that is probably on par with our overall growth is. The loss ratios on that product would be probably slightly, slightly higher than a traditional charge loss ratio. But remember, if you think about a credit sort of credit card, it's probably a lot less from a working capital perspective because you're looking at a 90 day deferred payment here.
You're not looking at something that's going beyond 90 days, whereas the card credit card receivable goes out a lot longer. Merchant financing has had even less growth than that as we continue to test that to make sure that we're offering not only the best experience, but we have the best credit experience as well because that one goes out a little bit further. However, having said that, we have the payables, right? So the merchant financing piece of that is a loan against some of the merchant payables that they would have as well. And just so I'm clear that these products have been tested for Yes.
So working capital was launched in December of 2016 and very slowly rolled out last year. Merchant financing has been around a lot longer. We paused on merchant financing as we rolled out more OpBlue because we had some a little less transparency. So that's why we paused
on merchant financing for a bit. Okay.
That's helpful. Thank you. The second question is on the discount rate. And I understand there's a lot of different moving parts there. I guess the thing that I'm wondering is that change you made is $500,000,000 roughly between 1 basis points or 2 basis points to 3 basis points up to 5 basis points to 6.
It takes about 200 basis points at your net discount rate to make that up. So can you give us any color on some of the growth benefits you're getting from some of the concessions and the OpBlue and just make us feel better that this is sort of the net revenue is growing in the right way?
Well, I mean, you look at how the gross revenue is growing. Let's talk about the gross revenue, right? You've got billings growth. We had great billings growth in exiting Q4. And when you look at the billings growth that we've had in SME, both internationally and in the U.
S, where we've made B2B concessions, where you have a lot of growth from a B2B perspective, we feel really good about that. We also feel really good about having opened up more coverage, gives us more share of wallet, which gives us more opportunity to grow lending. So as Anre said before, when we look at this, we look at this end to end. So discount rate for many, many years was the proxy for margin for this company. But there are so many other components that come into it.
What I wouldn't feel good about is if you weren't growing discount rate revenue. And you're seeing good growth in discount rate revenue and on top of that, lend revenue growth as well. So we constantly revisit it, but we feel really good about the decisions that we're making. We feel we're getting incremental share of wallet and incremental billings, which is driving incremental lending.
The other thing I would add, which I was trying to allude to in the presentation, is when we have strategic partnerships, we're looking across the whole enterprise and discount rate in that merchant contract. It's just one lever in a multifaceted relationship if you take Hilton as an example, right? And so we look at all of the levers together and say in that relationship, what's the best thing to do for us and for them based on where our respective priorities are, right? We are a large travel agency. We're trying to drive partnerships there that benefit Hilton.
We have an MR relationship, membership rewards points. And so just because a concession could be made in a discount rate, doesn't mean we didn't get another benefit in another place that you just don't see. Even the OpBlue program, as we're expanding OpBlue, it does bring the rate down. The part that we don't disclose as clearly for you is all the credit losses are now moved to the merchant acquirer. They manage the credit losses for all those 1,000,000 of small merchants.
All of the acquiring fees that we used to pay to the acquirers are now going away, and that increases that lowers operating expenses and creates more leverage for us to invest in other areas. So it's not just a one line. We look at the interplay across everything to see how it's helping the company grow. And we believe the Q4 could be a good view of how we believe we can operate going forward.
Because remember, my question is that this program, Opelu, is
a success is what you're saying.
Yes. And we're happy to We'd be
happy to Q4 had the same kind of discount rate reduction year over year that Anre just talked about in 2018 and had the highest revenue growth rates we've had in the company in years. Thanks so much.
Come right over here. Let's see if we can get that mic.
I'm going to do some text questions.
We'll do Ken and then we'll get Hey, guys. It's Jimmy Hanna. Just in terms of the deposit base, what percentage would you characterize as more of a small business or like a commercial oriented customer versus consumer customer?
You're talking about the online deposit program? Yes. It's 100% consumer.
So the question is, is that an opportunity for you? As I look at commercial banks, one thing they talk about with their commercial customers is that many times businesses leave 2 times the amount of their lending relationship in deposit and it's very sticky and low priced and it's because the bank does a lot of cash management and other opportunities. Is that ever something that because you have people on the street working on commercial customers, 40% of your customers are commercial, is that an opportunity out there as a funding source eventually?
I think it's an opportunity as a funding source in the short to mid term. It's something that we've actually discussed. As we're going through consolidating our banks right now, we've had 2 banks. As we consolidate our banks, we've had a lot of success from a consumer perspective. And as we've managed from a trigger perspective, as Paul showed you, we manage from a client management perspective.
It's another product that we can bring to bear. So we think there's opportunities from a small business perspective to absolutely drive the deposit.
One quick follow-up. Just Slide 26 talked about the 4 strategic imperatives. And I'm just curious, you guys have been acquisitive over the years, but kind of smaller, kind of add on acquisitions here and there. Steve, as you take over now for Ken's legacy, should we have in our mindset that there could be bigger potential acquisitions out there for American Express?
Well, here's how I think about it. These are the 4 priorities, and we need to move these forward. And the way we're going to move these forward is organically, partnership and acquisition. And if the right acquisition, the right opportunity comes along, we'll do it. And we can do that either if it's an expansion of the organic product base, if you will, it's an expansion of the product set.
But much like we just did with mezzie and cake, I mean, it's about capabilities to really get to playing a more essential role of the digital lives of our customers. So I'm not going to take anything off the table, but I think it will all be in the strategic context of those four priorities and how we're going to grow going forward.
Thanks. Ken?
Thanks. Ken Bruce, Bank of America Merrill Lynch.
I'll try to be quick because
it looks like it's getting worse outside, more so than that.
We have cots and blankets.
I like you guys.
I guess my first is a comment really. The 59% loan growth contribution from existing or seasoned accounts, I think, is great statistic. It really kind of speaks to a lot of different things. But I think just from the standpoint of credit, it's important. So if you can continue to provide that information on some regular basis, that would be great.
My question relates really to Doug's one of Doug's slides. He shows the new accounts acquired having kind of gone from 17% in 2015 to about 5% in 2017. I assume some of that is probably just the deceleration from the Costco buildup that you got or post Costco buildup that was occurring at that time. And I'm really kind of interested in terms of maybe if you could dimensionalize what that slowdown is and if you could provide maybe some context for where you would expect new account acquisitions to be going forward?
Yes. I don't think Costco really had a lot to do with it. It has to do with how we move money around to optimize our investments. We track every acquisition product channel market at a very granular level. And as we see returns start to change and start to improve in certain segments, to move it.
I do think that outside the U. S, we tend to have a more fee based model and those often translate to slightly higher acquisition costs, but also higher spend, higher revenue margin customers over time. We've been really successful outside the U. S. Over the last couple years and have moved money there.
But it's really just an ongoing optimization. And if I had a choice between growing driving most of my growth from new customers or driving it from average spend of those new customers, I'd opt for the latter because it spins our model. I mean it is that high spend, high margin, insistent customer base that's really at the heart of our proposition.
Okay. And then, Anre, just a quick question, if I can. The you kind of discussed within the context of OpBlue Blue getting to parity in the U. S. And obviously extending that globally.
Are the at least in the U. S, are the payment acquirers, are they rolling in American Express pretty much all the time as they are renewing their relationships with merchants?
Yes, that's what's happening. We have all the merchant acquirers, major acquirers in the United States that are part of the Op Blue program. There are no real outliers. And they do offer American Express in an integrated way with their offering, and we track the close rates and the percentage of merchants they speak to that close and we're very pleased with the progress thus far that the program has been adopted in the way that we envisioned when we rolled out the concept in February 2014.
Okay. You want to go for an email question?
Okay. There's 2 questions so far that come in through the email channel. First one, Jeff, for you from John Hecht at Jefferies. Is there any change in the seasonal elements of revenue and expenses given the accounting change to do with revenue recognition?
No. Okay, good. Very efficient.
And then Steve, this one for you from Sanjay Sakhrani at KBW. I'm curious on how you believe you'll be different in leading AXP than Ken was? And maybe can you talk about some of the changes you've made or are planning to make as you take over?
Yes. So let me talk a little bit about how we're the same and then we'll get a little bit into sort of the difference. I think both of us have a tremendous affiliation and appreciation for this company and for the culture of this company, for the brand and to our commitment to our customers. So that certainly is the same, and we're both pretty much lifers, right? I think that when we look at sort of this transition, which was by my account and I think by most people's account, a pretty seamless transition, we're not pivoting here.
This is not a pivot. We are doubling down on what really has worked in the past with more of a probably a little bit more of a laser focus on a few things at this particular point in time. What I think is a little bit different is and it's probably very similar to when Ken first took over 17 years ago, I'm a little bit closer. I'm a little bit closer to how the company sort of operates. And when Ken took over, he took over much more of a holding company.
We still had the American Express Bank. We still had Ameriprise and so forth. And what I think that we're trying to do, and this is really a continuation of what Ken had started over the last year, is really to look at things from an enterprise perspective, to really look at where the advantages are. And you've seen some of that today. You've seen that a little bit with the a little bit more focused on a differentiated business model.
You see that with the question that was asked to Anre, is there debate around sort of the merchant discount rate? We're really looking at this thing, I think, a lot more end to end. I think that from a change perspective, I've been around a really long time and I've been involved with Ken for just about every single one of these reorgs in the last sort of 10 years or so. And as we looked at this particular reorganization, it was really to get us a lot more even more focused than we were, more centers of excellence and put things together and eliminate some of the spans and layers that we had. So the changes that we made, I took over on February 1st, we made our organizational changes on February 1.
And we are ready to roll. So Doug not only has the global consumer business as he has, but he now has our responsibility for credit, responsibility for digital and responsibility for our analytics as well. So Doug has really 2 roles here, running a business and running centers of excellence that support the company. That's been a journey we're on. Onray picked up additional responsibility for GNS Because I think as we move forward here, you're going to see GNS become so much more important from an acquiring perspective and you're going to see the issuing component of that really being used in a very much more tactical way to drive more relevance in certain markets and in certain geographies.
Strategic partnerships with Enre also picked up and you saw a great example of that Hilton and could have done that with Delta or Marriott and so forth and that Enre picked up a little bit later in the year. From a commercial perspective, I'm in the process of looking for somebody to head commercial business for us overall. Paul is doing a great job stepping in at this point, did a great job, I think, presenting our commercial business today. And that's pretty much what we talked about because the commercial business was a combination of sort of the open business from years ago, small business internationally, cross border payments and the traditional corporate card business. So we put all that together.
And then you start from a leadership team perspective, we've moved a few people around. Paul Fabara took over all of our servicing and credit administration. And I did not replace the Vice Chairman role. So those were I think those would be the highlights from an organizational perspective. But what I could tell you is, this is a management team, as you saw, that's sort of a little bit fifty-fifty, 50% from the outside and 50% sort of organically grown within these walls here.
And we are all committed and we are all determined to continue with the momentum that we have. So a little bit longer answer than Jeff's answer, no.
I've got one more that has come in from Max Sykes at Gabelli. And the question is just whether we can comment on the recent litigation and appeal case, the time line for announcements and potential impact.
So let me just make a couple of comments. Number 1, from a time line perspective, we think it probably be in the June time line. Number 2, what I would say is why we believe in consumer choice, and this is why this is important for us. And number 3, we also believe that from a merchant perspective, if you decide to sign a contract with us, you're not forced to sign a contract with us to have acceptance, that you should live by the terms and agreements of terms and conditions of that particular contract. And while we don't necessarily believe in the short term anything sort of truly detrimental will happen to our business.
We've had these contractual terms and conditions for decades and we believe in them, and that's what we're fighting for. And if it's these terms or it's some other terms, we're standing our ground because we believe these are the right terms and conditions to do business with us, and we don't believe our customers should be disparaged or harassed at the point of sale. So that's the answer. Anything in the room? Yes.
This is Ashish Sabadra from Deutsche Bank. Jeff, you mentioned the rewards will grow more in line with billing. One of the concerns is the competitive intensity is going to pick up, particularly as banks start reinvesting some of the tax savings back in the growth initiatives. So just in that light, if the competitive intensity does pick up, do you still expect what are your expectations for rewards and could that change over a period of time? Thanks.
Well, maybe I'll make a quick comment and then Doug, you may want to add. Look, I think we're very clear on what we expect for 2018. And sitting here this afternoon, we feel really good about the value propositions we have in the marketplace and their competitiveness. And we're focused on using all of the levers we have, including our tax savings, to drive steady growth for our shareholders going forward. We'll have to see what competitors do, but we feel good today.
Yes. I mean, I would only say, our customer base is some of the most sophisticated consumers in the world, right? And you can't play them for fools. They need real value, both on the more commodity levers of price and rewards as well as on the experience side. We like what we've done in terms of that kind of more commodity, those levers, what we've done in investment.
You can see it in the Platinum product, right? We put 5x rewards on Air. We drove a substantial increase in engagement with air, but also with the non air category of roughly the same amount. So we'll continue to make those smart investments, but we're committed to rebalancing the way we build value propositions and serve our customers and focus more on differentiated experience and service face value, whether it's our lounge collection, whether it's Pay It Planet, whether it's investment in servicing and our mobile product. We're going to continue to make sure that we're pushing that envelope.
We think it's a place, number 1, where our customers expect us to innovate and a place where we're uniquely credible laying claim to competitive advantage.
One quick follow-up question. Doug, you on the Slide 32, you talked about how in 2017 compared to 2,007, you have customers which have much better credit quality, much more tenure and much lower balance transfer. So overall, the quality of the portfolio is much better. But in addition, can you also talk about like how the new technologies like AI, ML, there's been a lot of talk about how that helps you on the underwriting side upfront, but also can it help mitigate the risk on the backside like when a risk profile of the customer increases, is there a predictive capability there? And is it possible for you to gen because the fact that you do approvals at the transaction level, is there anything that you can do there or turn down an active card and just prevent the kind of spike in charge off we saw in the last cycle?
It's been a very big driver of our performance over the last several years. And I think we're still in the relatively early innings of our ability to use increased storage processing and ML technologies to improve our discrimination. No question about it. I mean, I'll give you one example. One example is, historically, because of processing throughput and such with the complexity of the algorithms we run, we would have to do a stratified sample where we'd bring in about 2% of all transactions on which to model fraud propensity.
And it would take us about 2 or 3 days to run that algorithm. Now we run it on the full sample and we run it in a fraction of the time. And we'll continue to be able to benefit from these, both in origination phase as well as the ongoing management and not just in bringing in traditional data, but in using natural language processing to crawl the web and make other inferences about existing customers' creditworthiness.
Ron here?
Evan Kurzman. So my question is about the global consumer. So you talked about your customer being sort of more sophisticated. And I think there's with maybe some newer customers, I think that that could be an issue when there might only have 1 or 2 cards and they want a card that can be taken widely. So I was just wondering kind of if that perception is true, it's not taken overseas or why that might be the case and what barriers there are to that happening?
Well, our coverage, and Anre can speak to it, is certainly less robust in certain international markets. There are international markets like Brazil and Japan where we have excellent coverage, U. S. Level of coverage or better. But in terms of how much of a barrier it is for us retaining customers or acquiring new ones, we have we've enjoyed tremendous acquisition efficiency over the last couple of years outside the U.
S, both in traditional kind of search and display media channels, but also in terms of that member get member or referral program I was talking about, which for me is both a high efficiency source of growth, but it also speaks to the conviction that our customers have and their willingness to recommend everything about the product, the services, the rewards and the coverage to family members and friends. And it's actually driving a much larger portion of our acquisition growth outside the U. S. Compared to inside the U. S.
I'd say one other thing too, which is you could make the assumption, hey, it was okay, you got a lot of customers, you acquired them 10, 15 years ago. They're hanging on because they're habituated to the coverage that we have and they've learned to live with it. The fact of the matter is new customer acquisition is driving nearly twice as much growth outside the U. S. As it is inside the U.
S. And a larger portion of new customers outside the U. S. Are under the age of 35. So we think from a relevance point of view outside the U.
S, while there is work to do on coverage, there's no question about it, it has not been a significant inhibitor to our ability to grow and take share and remain relevant to the newest generation of people. Just before Anre answers on
sort of on coverage, 2 other statistics that were in the presentation. If 17% SME International Buildings growth and you have 14% international consumer growth. So that's the billings growth in the market. So we're not talking about people coming out of the U. S.
And Trent. We're talking about that billings growth. Those are the 2 highest growth areas that we have at this particular point in time. So So that says that the coverage that we have is working from an acquisition perspective in those markets. We know there's more we can do, but that also means there's more upside that we have.
That's where I was going. You should see the coverage expansion that we're aggressively moving on half of the last several years is a growth opportunity for the company. When we acquire merchants, we're doing so at the request and in partnership with either our bank partners, our corporate clients or the consumers. So for example, if we go into Germany and we sign Aldi, which is one of the largest supermarket chains there, Aldi South and North, it creates a complete reappraisal of what American Express stands for in the market because now the largest supermarket chain in the entire country with thousands of locations now accepts American Express and is proactively promoting it, which we think is good. When we sign legal in the UK, which is a discount grocer, people think American Express is high end.
They say, well, now there's a different store that has locations and we offer that to customers. It creates not just more spending from existing customers, but it makes more people willing to recommend the car with the member get member that Doug referred to, and it also makes younger customers who maybe thought of American Express differently reappraise the brand and more likely to come on board. These things are working together, not in isolation.
Great. Thank you. Moore. Okay.
From Craig Moore at Autonomous. For Jeff, how should we think about modeling the provision in 2019 beyond? Thank you, Craig. Doesn't seem that Amex would need to exceed an allowance of 3% of loans by any meaningful degree considering where peers are at.
Well, gosh, as Craig was here, I'd say, Craig, you know I'm not really going to answer that question. Look, we feel really good about the growth we've had over the last number of years in our lending. We've done it while retaining best in class credit metrics. The write off rates have begun to drift up as we told you they would 2 years ago. And exactly what happens in 2019 is going to be a function of exactly how we're performing across in terms of growth across all the many different opportunities we have.
So I think the one thing and Doug then I'll let you add that I would say is we feel very confident about the economics we will generate in 2019, what the mix is of growth rates and provision growth rates is going to be a function of where we choose to grow at what rate. Yes. I mean,
look, the majority of the increase in write off rates or delinquencies are things that we are doing very deliberately. Growing more rapidly, which has a seasoning impact and growing from within our existing customer base, that reduces volatility, but it doesn't mean that it won't cause write off rates to drift up because you focus that credit extension on people that use credit, on revolvers within the base. And on average, they have, while
very attractive, slightly higher write off rates. So the vast majority of what we're
deliberate strategy and one that I don't know what slide number it is, but you can see we're getting paid for, whether it's in yield or whether it's in that net revenue margin, which I would invite you to compare to our competitors. And I think you'll see a lot of competitors quite proud of net revenue margins in the 10.5% range, say, compared to the 15% range. The wild card is what happens macroeconomically, right? And that's something no one's got an inside view on and all we can really do is deal with segments which we think will have lower volatility, make sure we're getting paid for the risk we take and remain really vigilant about changes or stress emerging in some of those segments.
So we are at the hour. We hope today that you got a little bit better perspective of the differentiated business model. The amount of growth opportunities that we do have in this very attractive payments industry and the fact of where we are going to focus our attention on the 4 strategic priorities. So we hope you were able to take away a little bit more than you had when you came in. And we thank all of you who came today in this absolutely terrible conditions outside